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CQPXR5GHT DEPOSIT. 



The Dealers' 
Handy Cost Book 

containing 

The Building Supply News' Adaptable, 
Uniform Cost Accounting System 

for every 

Building Supply, Lumber 
and Coal Retail Merchant 



WITH GRAPHS AND ILLUSTRATIONS AND 
A FACSIMILE OF ALL NECESSARY FORMS 



TO WHICH ARE ADDED A WEALTH OF DIS- 
CUSSION AND EXPLANATIONS AND A READY 
REFERENCE INDEX TO EVERY SUBJECT 



Designed b\ G. If '• Hafner 
u 

AT THE DIRECTION OF 

Building Supply News 
CHICAGO 

Cop v r ighi, 1922. 



Just Another Feature of H 
Building Supply News Service — 

"The Handy Cost Book" 
Is Just That! 

The Handy Cost Book cost several thousand 
dollars of expert study, dealer surveys, and in- 
vestigation — but Building Supply News has been 
glad to contribute all this without expense to the 
retail dealers of America as part of its regular 
service to the industry. Building Supply News 
has no financial interest whatever in the sale or 
forms or the installation of its cost system. 

The Handy Cost Book is but one more feature 
of constant every day service which Building 
Supply News is gladly rendering the dealers in 
America. Every part of the dealer's business is 
recognized and considered in every issue of Build- 
ing Supply News. Whatever your problems, 
whatever your difficulties, whatever information 
you want, you will find it there, or you can write 
the Editors and have for the asking their per- 
sonal service and assistance to the limit of possi- 
bility. 

If you are a subscriber to Building Supply 
News, that service is yours every day in the year. 
Tf you are not a subscriber, we believe you will 
find it the best service investment you ever made. 
Subscription price is only four dollars a year. 



Building Supply News 

407 S. Dearborn St. : : : Chicago 



©C1A686482 



The Author 



G. W. Hafner, the man who, at the special request and super- 
vision of Building Supply News, has written the system and 
prepared the "Handy Cost Book" is one of the best-known 
and most experienced cost accounting experts in America. 

In addition to a long study of the cost accounting needs of 
retailers in various lines, Mr. Hafner has devoted a large part 
of his time for the past four years to specific study of the 
conditions and e very-day developments of the supply field. 

In 1920 at the special request of Building Supply News, on 
the basis of his knowledge and experience, Mr. Hafner under- 
took the working out and preparation of the "Building Supply 
Xews Cost Accounting System for the Retail Dealer," the whole 
project covering more than two years of exhaustive effort — in 
fact he is still engaged in the practical work of clearing up 
difficulties and carrying on a nation-wide educational campaign 
for the establishment of 100 per cent, efficient cost accounting 
methods thruout the retail business. 

Born in Owensboro, Ky., February 2, 1882, educated in the local 
schools and at Central University, Richmond, Ky., Mr. Hafner 
spent his first six years of manhood in direct contact with the 
retail lumber and building- supply business. From that intimate 
relationship with the industry in which he was afterward to be- 
come so important a factor, Mr. Hafner turned to the practice 
of public accounting, auditing, systematizing and industrial en- 
gineering. For ten years from 1908 to 1917 he had a wide and 
varied experience in commercial lines. In 1921 Mr. Hafner sev- 
ered his connection with Ernst & Ernst for the purpose of 
forming his own firm, G. W. Hafner, Inc., which is now a full 
fledged organization engaged in public accounting practice. 



The Key to This Book 

By G. W. Hafner 

| To get the most out of the next 150 pages of the 
Handy Cost Book, we urge you to read this personal 
message from the author, Mr. Hafner. It is the vital 
key to the best uses for, and real values of, the con- 
tents that follow. — Publishers.] 

THE AUTHOR thinks himself happily situated in being 
able to address, thru the pages of this book, so Jarge an 
audience on a subject that should be of vital interest to 
every business man. 

The phrase "should be" is used advisedly. For some 
of you, I judge, will not take the time to read and 
digest what is presented herein; if, indeed, you will so 
much as glance at the subject matter itself. 

And the reason for that condition is, that you cannot 
feel interested in accounting. You do not care about 
it. You cannot care about it. 

Nor can you be blamed for this attitude of mind. 
About such bookkeeping and accounting as you have 
come in contact with, no being on earth ever did or 
ever could become interested. Too often, experience 
teaches, bookkeeping records are maintained as a part 
of sine qua non of business — we keep books because 
every body else does. The quantity and quality of in- 
formation that books based upon this thought give 
to owners and executives is negligible. Xo wonder 
you are not interested. Your books furnish nothing to 
incite your interest. 

"Well, but," you say, "it is not right that accounting 
should be interesting. It is a very necessary thing. 



Author's Preface 



this accounting', very essential, very vital to the con- 
duct of my business; but — it is not interesting". It is 
its duty to be dull. It is monotonous by law. It can- 
not be correct and yet interesting." 

If you will believe me, you are wrong. All things 
whatsoever that are worth doing at all are interesting 
and attractive in the doing and when they are done. 
Now, if you say that your present methods of book- 
keeping and accounting are not interesting to you, the 
logical deduction is that there is something wrong, 
either in your bookkeeping methods or in you; and I 
trust you will not think I intend to flatter you when I 
say that the fault is not in you, but in the bookkeeping. 

You will not say that 3 r ou have no pleasure in the 
amount of profit you are making. Surely you are in- 
terested in knowing whether you are solvent, and 
whether you are making any headway toward the one 
goal of all business activity; namely, profits. 

If you are not making money, or if you are making- 
less than you should, there's a reason. Your books 
are kept to give you the reason. And to the extent 
that your books furnish you with the reason, to that 
exact extent will they be interesting to you. 

"Well, but what are we to do;" you will say, "we 
cannot make bookkeepers of ourselves." True! and 
there is no need that you should. You have more im- 
portant work to do. You may very profitably leave 
the bookkeeping entries to your bookkeeper. 

But to make accountants of yourselves is precisely 
what you can do and ought to do. 



Author's Preface 



Accounting is an interpretation of the results of 
bookkeeping. 

You should be an accountant. You should know how 
to interpret the language of figures. You should know 
how to read a Balance Sheet, and Profit and Loss 
Statement. If you do not know how to do these things, 
read over, study and digest what is contained in the 
various chapters, and you zvill know, finally and definitely. 

Accounting is a science for all business men to learn, 
because all are concerned with it. And it is so sim- 
ple that there is no excuse for not being acquainted 
with its primary rules, any more than for ignorance of 
grammar or of spelling", which are both far more diffi- 
cult sciences. 

Far less trouble than is necessary to learn how to 
play chess, or whist, or golf, tolerably, will acquaint 
you with all the main principles of accounting. The 
entire matter is up to you. If you want to know you 
may — and that easily. You may prefer to do other 
things. You may have no inclination for this. You 
may consider it of secondary importance. It is for you 
to choose. 

You recall how it was in Shakespeare's "Merchant 
of Venice." How, in the play, the hand and heart of 
the fair damsel (representing Success, in your case) is 
to be won only by that man who should rightfully 
choose from among three caskets; one of gold, and 
one of silver, and one of lead. 

Choose ye ! 

THE AUTHOR. 
Chicago, 111. 



Contents 



Chapter I — Fundamentals of Accounting 11 



1 — Accounting Should Te t Condi- 
tion of Business. 

2 — Accounting is Simple. 

3 — Accounting is Standardization. 

4 — Standards the Cause — Progress 
the Besult. 

5 — What Business Transactions Con- 
sist of. 

6 — Condition of Cash the Main De- 
sideratum. 

Chapter II — Books of Accounts.. 

1 — Accounts Payable and Distribu- 
tion Record. 
2 — Cash Disbursements Record. 
3 — Sales Analysis. 
4 — Cash Receipts Record. 
5— General Journal. 



7 — Books of Accounts. 

8 — Real Accounts. 

9 — Transformation of Cash. 
— Fundamental Principle of Double- 
Entry Bookkeeping. 
11 — Cash and Expenses. 
12 — Nominal Accounts 
L3 — Inequality of Assets and Capital. 
L4 — Peculiarity of Sales Transactions. 
L5— The Complete Cycle. 

20 

6 — Ledger Postings and Accounts. 

7 — Determining Agreement Between 
Subsidiary and Controlling Ac- 
counts. 

8— Balance Sheet. 

9— Profit and Loss Statement. 



Chapter III — Classification of General Ledger Accounts.. 33 



1 — General Ledger Feeders. 
2— What the General Ledger 

eludes. 
3— Arrangements of General Ledgi 

Accounts. 
4— Information Furnished by Gei 

eral Ledger. 



5 — Significance of Perpetual Inven- 
In- tory. 

6 — How Business Facts are Fur- 
nished. 



Chapter IV — Posting to General Ledger Accounts 42 



1— Petty Cash Fund. 
2 — tash on Deposit. 
3— Notes Receivable— Customers. 

4 — Customers Notes Discounted. 

5 — Notes Receivable — Personal. 

C — Accounts Receivable — Customer-;. 

7 — Allowance for Doubtful Accounts. 

8 — Accounts Receivable — Personal. 

9 — Inventories. 
10 — Investments. 
11— Land. 



12— Buildings. 

13 — Warehouse and Yard Equipment. 
14 — Autos and Trucks. 
15 — Wagons. 
16— Horses. 
17 — Harness-. 

IS— Garage and Stable Equipment. 
19 — Office Furniture and Fixtures. 
20 — Allowance for Depreciation Ac- 
counts. 



Chapter V — Posting to General Ledger Accounts 

(Concluded) - 49 



1— Good Will. 

2— Leasholds. 

3 — Unexpired Insurance. 

4 — Compensation Insurance Deposit. 

3 — Prepaid Interest. 

r> — Supplies. 

7— Stationery and Office Supplies. 



8— Ya 



oiling Ac- 



9 — Delivery Expense — Controlling Ac- 
count. 

10— Selling Expense— Controlling Ac- 
count. 



Contents 



11— Administrative and Gemral or- 25— Reserve foi Amortization o( 

rice Expense— Controlling Account. Leasehold. 

12— Notes Payable. 26— Capital Stock. 

18— Accounts Payable— Vendors. 27— Surplus. 

14— Accounts Payable— Individuals. 28— Profit and l.< <> Current. 

L5— Dividends Payable. 29— Sales. 

it; — Accrued Labor. 30 — Saks Returns. 

17 — Accrued Salaries. :;i— Sales Allowances. 

IN — Unclaimed Pay Roll. 32 — Cost of Sales. 

19 — Accrued Commissions. :•;:: Interest Earned. 

20 Accrued Taxes. 34— Discount Earned. 

21— Accrued Compensation Insurance. 35— Interest Paid. 

22 — Accrued Interest. 36— Discount Allowed. 

23— Reserve for Income and Excess 37— Balance She. r. ami Profll i 

Profits Tax. Lo s Statement. 

•J4 — Reserve for Amortization of G I 

Will. 

Chapter VI — Cost Finding — Analysis of Operating 

Expenses 58 

1— The Outstanding- Industrial Prob- 4 — What is a Cost System? 

leni. 5 — What Constitutes Cost. 

•J— The Causes of Industrial D s 6— The True Definition of Cost. 

tress. 7 — Expense Accounts Classifications. 

3— Price Fixing L'nn cessary as we'l S — Basis of Cost Finding System. 

as Illegal. 9 — Chart of Expense Classifications. 

Chapter VII — Classification of Expenses 64 

1 — Labor. 18— Auto Expense. 

•2 — Maintenance. 1 4 — Advertising. 

3 — Insurance. lo — Traveling Expense. 

J — Taxes. L6— Postage. 

5 — Depreciation. 17 — Telephone ami Telegraph. 

(i — Rules for Maintenance and De- 18 — Water. Fuel and Light. 

preciation. 19 — Credits and Collections. 

7 — Rent. 20 — I Hies and Subscriptions. 

8 — Team and Truck Hire. 21 — Legal and Professional Services. 

9 Executive Salaries. 22 — Bad Debts. 

1C— Office Salaries. '23 — Unclassified Expenses. 

1L — Salesmen's Salaries. 24— Non-Operating Expenditures. 
1 2 — Commissions. 

Chapter VIII — Departmental Distribution of Expenses.. 74 

1 — Departmentalization. 14 — Advertising. 

2 — Labor. 13 — Traveling Expense. 

3 — Maintenance. 16 — Postage. 

4 — Insurance. 17 — Telephone and Telegraph. 

5— Taxes. IS— Water, Fuel and Light. 

6 — Depreciation. lit — Credit and Collections. 

7 — Rent. 20 — Dues and Subscriptions. 

8 — Team and Truck Hire. 21— L-.gal and Professional Service-, 

'.t — Executive Salaries. 22— Bad Debts. 

10— Office Salaries. 23— Unclassified Expenses. 

11— Salesmen's Salaries. 24 Instructions Regarding "Time" 
1 2— Commissions. Basis. 

13— Auto Expense. 



Contents 



Chapter IX — Applying Expenses to Sales 81 

1 — Three Groups of Deliveries. S — Ascertaining Profit and Loss for 

2 — All Sales not Chargeable with speeitie Commodities. 

Same Expense. 9 — Accounting for Cement Sacks. 

3 — Yard and Warehouse Expenses. 1U — Variations in Accounting Plan. 

4 — Delivery Expenses. 1 1— Accounting for Coal Merehandis- 

3 — Silling Expenses. ing. 

(J — Office and Administrative Ex- J 2 — Accounting for Lumber Merchan- 

penses. dising. 

7— Illustrations of Expense Appli- 13— Minwork Factory Accounting. 

cation. 

Chapter X — Accounting For Purchases 91 

1 — Requests for Purchases. 7— Average Unit Price. 

2 — Purchase Orders. 8 — Accounting Control over Merchan- 

ts — Safeguarding Material. dise. 

4 — The Stores Ledger. 9 — Vouching Purchase Invoices. 

3 — Stores Record Accounting Pro- 10 — Variations in Material Cast. 

cedure. 11— Two Methods of Pricing. 
0— What is Cost Price. 

Chapter XI — Accounting For Sales 98 

1— Credit Records. .3— Posting to Customers' Ledger. 

2 — Stripping Order-. (j — Credit Memoranda. 

3 — Sales Invoice. 7 — Posting Credit Memoranda. 

4 — Sales Accounting Routine 

Chapter XII — Accounting For Coal And Lumber 

Departments 103 

1 — Differences in Unit of Measure. 5 — Revision of Purchase and Sales 
2 — Time Reports Unnecessary. Forms. 

3 — Finding the Best Possible Method. 6 — Suggest; d Sales Classifications. 
4 — Finding One Unit of Measure. 

Chapter XIII— What is the Real Value of a Cost 

Accounting System? 109 

1 — Fours Ways of Handling Business. 3 — Paper "Profits" Boost Xo Bank 

2 — Wly Men Fail. Balance. 

4 — Failure is Preventable. 

Chapter XIV — Why is a Perpetual Inventory 

Necessary? 114 

1 — Frequency of Turnover Basis of 3 — Study of Inventory Figures. 

Profit. 4 — How to Control Expense. 
2 — Successful Mechanism to Secure 

Facts and Figures. 

Chapter XV — How Will Business Be Done in the 

Coming Years? 118 

1 — Trend of Prices Will be Down- - 1 — An Adequate Cost System Your 

ward. Chart and Compass. 

2 — Conditions Which Result. 3 — How to Secure a Composite Pic- 

3— Return to Post-Civil War Caution ture of the Entire Industry, 
and Thrift Evident. 



Contents 



Chapter XVI— -How to Find the Actual Cost of Doing 
Business 123 

1 — Mistake of Standing Still in Cost 4— Why Satisfactory Comparisons 

Methods. Are Not Yet Possible. 

2— Plan Practical if Two Things 5— Cost Data That Will be of Prime 

Happen. Service. 

3— Seven Benefits to Dealers From G— Divulging of Confidential Data 

Uniform System. Mot at All Necessary. 

Chapter XVII — Bookkeeping Machines — When and 

When Not? 128 

1 — Everybody Talking System. 5 — How One Dealer was Misled. 

2 — First Description, Then Explana- — Do you Live in the Past or the 

tion. Present? 

3 — It Must Gather and Present 7 — Use a Machine Where Volume 

Facts. Demands one. 

4 — A Machine is Not a System. 

Chapter XVIII— How Should Credits Be Handled? 133 

1 — Overexpansion of Credit. 4 — Keeping Your Credit Good. 

2— The Limit of Credit. 5— The Safety Valve of Credit Ex- 

3 — Relation of Sales Volume to pansion. 

Credit. 

Chapter XIX— How Should Collections Be Handled? 141 

1 — Similarity of Selling and Collect- 3 — Personal Contact Best Collection 

ing. Medium. 

2 — Requisite of Human Interest in 4 — Credit and Collection Informa- 

Successful Collection Plans. tion. 

Chapter XX— Finding the Right Selling Price and Fair 

Profit Percentage 148 

5 — Charting Sales and Collections. 2 — The Supply Man Who Knew His 

1 — An Actual Loss When the Dealer Costs. 

Didn't Know. 3— A Rule for Figuring Percentages. 

Index 153-158 

Forms, Diagrams and charts. (See large folders 
in back of book). 



CHAPTER I 



Fundamentals of Accounting 

ACCOUNTING SHOULD TEST CONDITION OF 
BUSINESS 

A right and practical system of accounting will tell more 
about your business than a physician can usually tell about his 
patient; it will do more for your business, in the way of test- 
ing its condition, than is done by the physician who, in diag- 
nosing the case of his patient, uses the clinical thermometer, 
counts the pulse, takes the blood test — in short, all the tests 
for the condition of your business should be rendered by the 
accounts in your ledger for the correct keeping of accounts is 
the means by which the business man may know all the vital 
facts in connection until his business, in order that he may plan 
providently. 

ACCOUNTING IS SIMPLE 

There is nothing involved or complicated in this matter of 
bookkeeping. It is not mysterious. It is not clouded in a 
maze of technicalities. It is not hard to understand. There 
is no legerdemain, hocus-pocus, or chicanery about it. 

It is simple. It is plain. It is easy of mastery. As a 
straight line is the shortest distance between two points, so 
also is modern bookkeeping methods the exemplification of the 
obvious and the practical. 

ACCOUNTING IS STANDARDIZATION 

It is the standard way of doing things, the way that has 
been developed as best thru years of experience. The first 
savage who tired of killing fish by means of a spear thrust, 
and made a primitive hook of a piece of curved shell intro- 
duced a standard method of catching fish. 



12 /. Fundamentals of Accounting 



When a man of the stone age discovered that fire was 
started in the dried grass at his feet by the sparks as they 
fell from the chipping of a flint arrowhead, a standard method 
of producing fire was established, which was not changed 
until the lucifer match was substituted. 

STANDARDS THE CAUSE— PROGRESS THE RESULT 

Until recently the standards followed by business men in 
accounting methods were largely of the rule- of -thumb variety, 
zvhereas the fundamental idea underlying modem accounting 
is the substitution of scientifically accurate methods for hap- 
hazard and rule-of-thumb methods. 

Civilization has been enabled to progress only by the adop- 
tion of standards. Standards passed on from father to son 
and from generation to generation represent the cogs on the 
wheel of progress, by which it has been possible to maintain 
each slow and painful forward movement. And if it were not 
for the privilege of drawing on the storehouse of the ac- 
cumulated experience of the race, as represented by its stand- 
ards, each individual would be compelled to start in at the 
very beginning. Progress would have been impossible. 

We are interested here and now in standards in bookkeping 
and accounting. Theories — you say ? Well, yes ; but theories 
founded upon the hard facts of experience, dearly bought, 
and precious because of that. Accounting is simply a method 
which hard-headed, common-sense business men have worked 
out for recording and balancing what comes in and goes out 
in the daily transactions of their business. 

WHAT BUSINESS TRANSACTIONS CONSIST OF 

Essentially all business transactions of whatever kind con- 
sist in transforming cash into salable goods, and salable goods 
into cash. This is the sum and substance of all business. 

We begin by having" a certain amount of cash on hand. 
This cash is spent in exchange for whatever goods we have 



/. Fundamentals of Accounting 13 

decided to deal in. We sell these goods and receive cash in 
return. 

If we have been successful in disposing of our goods, the 
cash we receive for them will cover the original purchase 
price plus an increase of the total sum involved, which will 
be our profit. 

CONDITION OF CASH THE MAIN DESIDERATUM 

Two transformations are evident here. FIRST, cash is 
transformed into goods; SECOND, goods arc transformed 
into cash. 

But wait! No business is quite as simple and easy to 
handle as this may seem to signify. Over and above the 
cost of the goods themselves, our cash is also expended for 
things that are more or less intangible. In other words, it 
costs money to do business. 

Every business has expenses — rent, insurance, taxes, depre- 
ciation, postage, stationery, and what not. This means that 
an element of complexity has been introduced into the trans- 
formation of our cash. It means that only a part of our 
cash is available for the purchase of goods. It means that 
part of it must be expended for rent, for letterheads, for 
billheads, for envelopes, for stamps, for any number of 
things that cannot be sold, and yet are necessary to the proper 
conduct of our business. And this means that when we sell 
our goods we must secure a price large enough to cover, not 
alone the cost of the goods themselves, but also the cost 
of all these necessary and indispensable expenses. 

Our main interest, therefore, is always centered in the con- 
dition of our cash, which in the language of business is known 
as "Capital." Hence, the necessity for accounting arises, in 
order that the condition of our cash may be determined at 
any time. 

BOOKKEEPING is the means by and thru which we ob- 
serve how we stand, imth respect to our cash or capital. 



I. Fundamentals of Accounting 



ACCOUNTING is an interpretation of the results of book- 
keeping. \ 

BOOKS OF ACCOUNTS 

The following are the three elementary books of accounts : 
1 — Books of Original Entry. 
2 — Journals. 
3 — Ledgers. 
Books of original entry serve as a means of recording the 
transformations of business transactions, such as the follow- 
ing : 

(a) Cash into salable goods and expenses. 

(b) Salable goods into sales on credit. 

(c) Sales on credit into cash received. 

Journals, in modern accounting practice, are generally com- 
bined with books of original entry, and as the various trans- 
actions are summarized in them, serve to indicate their desti- 
nation, thus : 

(a) Cash received, charged to the bank, and credited to in- 

dividual or 'firm paying it. 

(b) Cash paid out, charged to individual or firm from whom 

purchase was made, and credited to 4he bank. 

(c) Sales, charged to individual making purchase, and cred- 

ited to sales account. 
Ledger accounts may be viewed as two columns of figures, 
as illustrated by the cash account. The entries to the left- 
hand column sum up all the cash we have put into the bank 
or into the cash box or till. The entries to the right-hand 
column sum up all the cash we have taken out of the bank 
or till. By adding up both columns and subtracting the total 
of the one column from the total of the other column, the dif- 
ference between them will obviously represent the cash we 
still have on hand, whether that be in the . bank, or in the 
till, or in both. 



I. Fundamentals of Accounting 



REAL ACCOUNTS 

This cash account is what is termed a Real Account. It 
represents actual, tangible property— property in our posses- 
sion that we can see, and handle. Land, buildings, machinery, 
equipment and materials or goods of all kinds are also Real 
Accounts. Any balance that remains in any of these accounts 
must of necessity always appear on one side, because it is 
impossible to have taken out more than was originally put in. 

But ledger accounts do not always represent tangible assets 
or property. The reason for this lies in the very nature of 
double entry bookkeeping, which demands that every tran- 
saction be entered twice, in order to show both sides of the 
transformation involved. In other words, "what it was" and 
"what it is" must both be represented in ledger accounts. 

TRANSFORMATION OF CASH 

In order to illustrate this let us assume that a business 
starts out with an investment of $5,000. The first entry 
would be a charge to "Cash" account and a credit to indi- 
vidual "Investment" accounts, if the business was a sole pro- 
prietorship or partnership, or to "Capital Stock" account if a 
corporation. What we have, then, is a balance of $5,000 in 
cash in one ledger account, and a corresponding item of capi- 
tal in another ledger account. 

Hence, it is evident that whatever transformations zve affect 
in the form of cash, the value of these must akcays balance 
n'ith the entry of capital, until we have either made a profits— 
an addition to capital; or a loss — a diminishment of capital. 

When goods are purchased, the transformation of cash must 
be recorded in both its aspects ; that is. to say. Merchandise 
must be charged with the amount we have paid or will have 
to pay for it, and Cash must be credited with the amount 
paid, whether that be immediately or sometime later on, de- 



l(j /. Fundamentals of Accounting 

pending, certainly, upon whether our purchase was for cash 
or on credit. 

Assuming that we spent $2,500 for goods, we would have 
in our ledger, following this transaction, three accounts ; that 
is, one with Capital, showing a credit balance of $5,000, and 
one each with Cash and Merchandise with debit balances of 
$2,500 each. 

FUNDAMENTAL PRINCIPLE OF DOUBLE-ENTRY 
BOOKKEEPING 

In the first instance, the debit entry of $5,000 in our Cash 
account balanced the credit entry in Capital account. 

In the second instance, the debit entries in both Cash and 
Merchandise accounts balances the entry in Capital account 
as before. 

The reason for this is because the fundamental principle 
underlying double-entry bookkeeping is to maintain a balance 
betiveen proprietorship on the one hand, and goods or property 
on the other. 

' Up to this point, the balance between Capital or proprietor- 
ship, and assets or property has not been affected. True, the 
form of our property has been changed, since part of our 
cash was used to purchase goods ; but the total of our two 
property accounts, represented by Cash and Merchandise equals 
Capital account, or the initial $5,000 invested in the business. 

CASH AND EXPENSES 

Let us now extend our bookkeeping procedure to represent 
a condition where cash is paid out not alone for goods, but 
also for certain expenses necessary to the proper conduct of 
our business. 

In addition to the use of our cash in the purchase of goods 
to the value of $2,500 we have found it necessary to make 



Fundamentals of Accounting 17 



further expenditures of cash, which, let us say, are repre- 
sented by the following list: 

Salaries $200.00 

Wages 100 00 

Rent 100.00 

Depreciation 20.00 

Stationery 25.00 

Postage 10.00 

TOTAL : $455.00 

NOMINAL ACCOUNTS 

Having recorded all these transformations of cash, the next 
question that confronts us is this: Is the total of our assets* 
still equal to our capital? 

Let us see. Our cash is now reduced to a balance of 
$2,045; our merchandise is still worth $2,500; and we have 
set up on our ledger six new accounts; that is, salaries, $200 ; 
wages, $100; rent, $100; depreciation, $20; stationery, $25; 
postage, $10. 

It is obvious that none of these last six accounts represents 
anything in our possession. We have paid out our money 
for all of these, but we have nothing tangible left. They 
do not represent anything real. They do not represent prop- 
erty. Hence, they are known as Nominal Accounts. 

INEQUALITY OF PROPERTY AND CAPITAL 

Now, since accounts with expenses do not represent any- 
thing real and tangible — since they do not represent property 
— our balance between property on the one hand and capital 
on the other is disturbed. Our property accounts now rep- 
resent a total of only $4,545 as against a Capital account of 
$5,000. 

The reason for this apparent discrepancy is that, as yet, 
we have sold nothing. Expenses have been incurred for doing 
business, but our business has consisted so far only in buying 



/. Fundamentals of Accounting 



goods. In order to round out the entire procedure, we must in- 
troduce the element of sales. 

Let us assume, therefore, that we sold a quantity of our goods 
and received cash in return to the value of $1,200, and that 
these goods which were sold represented a cost to us of $600. 
It is evident that we have made a gross profit of $600. (By 
gross profit is meant a profit from which the expenses of doing 
business have not been deducted.) 

PECULIARITY OF SALES TRANSACTIONS 

This involves an entirely new element in our transactions. 
Heretofore, all of our transformations have been equal. It 
develops now that we have sold $600 worth of merchandise and 
have received $1,200 in return. 

Hence, we are faced with the necessity of entering each item 
from two aspects, that is to say, in two values. 

The sale is entered in the first place from the viewpoint of 
its cost to us ; in the second place it is entered from the view- 
point of its sale price. Each of these entries must be charged 
and credited to ledger accounts. 

FIRST, we take the sales at their cost to us, and charge Sales 
account, passing the corresponding credit to Merchandise ac- 
count. 

SECONDLY, zvc take the sales at sale price, charging the cus- 
tomer or customers, and crediting Sales account. 

THIRDLY, as the money is received from the customer we 
charge Cash account and credit the individual or firm making 
payment. 

THE COMPLETE CYCLE 

We have now a complete cycle of transactions, and should be 
in a position to prepare a Balance Sheet and Profit and Lou 
Statement, thus : 



I. Fundamentals of Accounting 19 

BALANCE SHEET 
ASSETS LIABILITIES 

Cash on hand $3,243 Capital $5,000 

Merchandise on hand.. 1,900 Surplus 145 



$5,145 $5,145 



PROFIT AND LOSS STATEMENT 

Sales $1,200 

LESS: Cost of Goods Sold 600 



GROSS PROFIT... 600 

EXPENSES 

Salaries $200 

Wages 100 

Rent 100 

Depreciation 20 

Stationery 25 

Postage 10 

455 

NET PROFIT _ ...$145 



CHAPTER II 

Books of Accounts 

THE SIMPLE ARRANGEMENTS for keeping track of 
the results of buying and selling described in Chapter I, would 
require supplementing in any business of importance. The * 
present chapter exemplifies the fundamentals described therein, 
and presents the books of accounts to be used. 

ACCOUNTS PAYABLE AND DISTRIBUTION RECORD 
(FORM 1— FIGURE 7) 

All purchase invoices of whatever kind, except those paid 
from the petty cash fund, all pay-rolls, and all petty cash 
summaries are to be entered in this record. 

The face value of each invoice is to be separately entered 
to the credit of "Accounts Payable" in the column pro- 
vided; the day of entry, and the date and number of in- 
voices to be shown in the columns so headed. The corre- 
sponding' debit will be entered to the particular column to 
which it applies; as for instance, invoice covering purchase 
of brick in "Brick" column, invoice covering purchase of 
cement in "Cement" column, invoice covering expenses to 
one of the expense columns, and so on. 

The column headed "Paid by Check No." under the gen- 
eral heading "Credits" is to be used to set in the number 
of the check given in payment. At the end of the month 
all open items will agree with the balance of the controlling 
account with Accounts Payable in the General Ledger. 

The column headed "General Ledger," under the general 
heading "Credits," is to be used for crediting the monthly 
proportions of insurance, taxes, depreciation, etc., to their 
respective General Ledger accounts, so that charges may be 
passed to expenses for the current month, as provided for in 
the four "Expense" columns, under the general heading 



77. Books of Accounts 21 



"Debits ;" viz., "Yard," "Delivery," "Selling," and "Ad- 
ministrative and General Office." 

The column headed "General Ledger" under the general 
heading "Debits" is to be used for making any charges to 
General Ledger accounts in the way of purchases of machin- 
ery or other assets, as well as for charging deferred items 
in the way of prepaid insurance, and the like. 

All items charged or credited thru the two "General Ledger" 
columns will require to be separately posted to their respective 
ledger accounts. 

All items charged thru the four "Expense" columns 
will require to be posted to the proper subdivision of these 
accounts, in the Expense Ledger, which will be illustrated 
and described by "Chart of Expense Classification" to be 
presented in a later chapter. 

The totals of all columns, except the two "General 
Ledger" columns, will be posted to their respective ac- 
counts in the General Ledger at the end of the month. 

This record should be footed in ink, ruled up at the end 
of the month, and the totals for the month supplied. It is 
self-balancing and should be balanced dailj'. 

CASH DISBURSEMENTS RECORD (FORM 2— FIGURE 7) 
Checks are drawn for all payments other than those made 
out of the "Petty Cash Fund." No Disbursements are to be 
made in cash except from the "Petty Cash Fund." The 
"Petty Cash Fund" must invariably be replenished by check 
drawn on the company's bank account. 

The net amount of each check is to be separately entered 
to the credit of the bank from which the withdrawal was 
made. Check number is to be shown opposite each with- 
drawal, in column headed "Check Number," and the date of 
withdrawal in column headed "Day." 

If, for any reason, a check is rendered void, the number 
of the check should be entered in its numerical order, the 
word "Void" written in the column headed "Paid To," and 



//. Books of Accounts 



the voided check filed with the cancelled checks subse- 
quently returned from the bank. 

The "Discount Earned" column is to be used only for 
cash discounts deducted in payment of accounts payable. 

The "Freight" column is to be used for showing deduc- 
tions on account of freight paid to transportation company, 
where goods were billed f. o. b. point of destination. 

All payments to trade creditors are to be entered, in gross, 
in the "Accounts Payable" column. 

All other entries will be made in the two "General Ledger" 
columns. 

All entries in the "General Ledger" columns will be sep- 
arately posted. The totals of all other columns will be 
posted to their respective accounts in the General Ledger 
at the end of the month. 

This record should be footed in ink, ruled up at the end 
of the month, and the totals for the month supplied. It 
is self-balancing arid should be balanced daily. 

SALES ANALYSIS (FORM 3— FIGURE 7) 

In this record all sales invoices of whatever kind, both 
cash and credit, are to be separately entered at their face 
value. 

The total amount of the charge against the customer, 
as well as the daily totals of cash sales, are entered in the 
column headed "Accounts Receivable Dr." The date and 
invoice number are shown in the columns provided. 

Each item entered in the "Accounts Receivable Dr." col- 
umn requires to be individually posted to the account of the 
particular customer in the "Customer's Ledger." At the end 
of the month, the total of this column is posted to the "Ac- 
counts Receivable" account in the General Ledger. 

Under the general heading "Analysis" the sales are va- 
riously distributed to their proper columns; as, for instance, 
sales of brick to "Brick Sales" column; sales of cement to 



11. Books of Accounts 23 

"'Cement Sales" column, and so on thruout the balance of the 
record. 

As will be noted, these entries to the "Analysis" section of 
the record are in two values; viz., sales value and cost value. 
By this arrangement, at the end of the month, both the 
value of the sales at the selling price and the value of the 
sales at the cost price are ascertained, for each separate 
classification. 

At the end of the month, the totals of the columns headed 
"Sales Value" are posted to the credit of their respective 
"Sales" accounts in the Income and Expense Ledger. 

Likewise, at the end of the month, the totals ©f the 
columns headed "Cost Value" are posted to the debit of their 
respective "Cost of Sales" accounts in the Income and Ex- 
pense Ledger. 

These "Cost Value" totals, however, require to be posted 
a second time. This is for the reason that we must have 
both a debit and a credit entry for cost of sales, as well 
as for sales. 

It will be seen that our sales are debited to the indi- 
vidual customer, and credited to "Sales" accounts in total 
at the end of the month. 

Hence, our cost of sales must have a corresponding credit 
entry to offset the debit to the various "Cost of Sales" 
accounts. This is taken care of by posting to the credit of 
the various "Inventory" accounts. 

At the end of the month, therefore, each of the totals 
showing in the various "Cost Value" columns will be sep- 
arately posted to the debit of their respective "Cost of 
Sales" account, and to the credit of their respective "In- 
ventory" accounts. 

The columns headed "Weight," under the general head- 
ing "Analysis" are provided as a means for distributing oper- 
ating expenses to the various classifications or divisions of 
sales. Inasmuch as this has to do with the cost-finding fea- 



24 //. Books of Accounts 

ture of the methods presented in these articles, it is con- 
sidered inadvisable to treat with it here. 

CASH RECEIPTS RECORD (FORM 4— FIGURE 7) 

All cash received is to be entered in this record, the 
net amount of each receipt being entered in the column 
headed "Net Cash Received," and credited to Accounts Re- 
ceivable or to any other account to which it belongs. 

Remittances from customers are to be entered in the 
"Accounts Receivable" column in gross; that is, the total 
credit to be given to customers, irrespective of the amount 
of cash discount taken or other deductions made. 

All receipts for cash sales will be entered in the "Accounts 
Receivable" column, in the same manner as receipts from 
customers. This is correct for the reason that all sales for 
cash are entered to the debit of Accounts Receivable thru 
the Sales Analysis. If considered desirable, a customer's 
ledger sheet may be maintained with Cash Sales; this is 
hardly worth while, however, since the individual debit and 
credit entries for the cash sales transactions of each day 
will entirely balance each other. 

The "Discount Allowed" column is to be used only for dis- 
counts deducted by customers. 

The "Freight" column is to be used only in case customers 
deduct freight paid by them, where the invoice price in- 
cluded freight paid to destination. 

All items of exchange will be entered in the "Exchange" 
column. 

All other entries will be made thru the two "General 
Ledger" columns. Each item in the "General Ledger" col- 
umns will be posted separately. The totals of all other 
columns will be posted to their respective accounts, at 
the month's end. 



II. Books- of Accounts 25 

Each entry in the "Accounts Receivable" column will be 
separately posted in the "Customer's Ledger" to the credit 
of individual customer's accounts. 

This record is self-balancing and should be balanced 
daily. It should be footed in ink, ruled up at the end of the 
month, and the totals for the month supplied. 

Daily or at stated intervals, if daily depositing is imprac- 
tical, all cash received should be deposited in the bank. 

GENERAL JOURNAL (FORM 5— FIGURE 7) 

The Journal is to be used only for the usual monthly 
closing entries, after the books are first opened. 

The first two entries, illustrated by vouchers 1 and 2, are 
opening entries in connection with sales of stock and the 
purchase of plant and equipment. 

Vouchers 3 and 4 represent current monthly entries, while 
vouchers 5 to 10 inclusive, illustrate the closing entries 
for the month. 

Each Journal entry requires an explanation. Any entry 
put thru the Journal without an explanation is, on the 
face of it, suspicious. These explanations should appear on 
the Journal sheet itself after each individual entry, if no 
other means is provided for adequate description. 

In the method illustrated, such explanations are shown on 
the Journal Vouchers, which are summarized on the Journal 
itself, the date of the entry and voucher number being 
shown in the columns provided. 

To illustrate such descriptive matter, the explanation on 
voucher No. 1 should read somewhat as follows: 

"Setting up Capital Stock issued and outstanding as at July 
1st, 1920, as shown by Capital Stock Ledger. Total amount 
authorized Capital Stock is fully paid up." 

Likewise the explanatory matter on voucher No. 2 should 
read substantially thus: 



26 //. Books of Accounts 

"To state the purchase of plant and equipment, as author- 
ised in minutes of meeting of Board of Directors, June 26th, 
1920. Division of assets is based upon appraisal made by 
American Appraisal Company, May 1st, 1920." 

All items appearing in the "General Ledger" columns re- 
quire to be posted separately to their respective General 
Ledger or Income and Expense Ledger accounts. 

Each item appearing in the "Accounts Receivable" col- 
umns is to be posted separately to the individual customer's 
account in the Customer's Ledger. At the end of the month, 
the totals of these columns are to be posted to the "Ac- 
counts Receivable" account in the General Ledger. 

The totals of all entries in the "Accounts Payable" col- 
umns are to be posted, at the month's end, to the "Accounts 
Payable" account in the General Ledger. Each of these 
items must also be considered in its relation to the agree- 
ment .between the open items showing monthly on the Ac- 
counts Payable and Distribution Record and the "Ac- 
counts Payable" account in the General Ledger. 

LEDGER POSTINGS AND ACCOUNTS 

The various entries shown on the Books of Original En- 
try; viz., Accounts Payable and Distribution Record, Cash 
Disbursements Record, Sales Analysis, Cash Receipts Rec- 
ord, and Journal (Figure 7), have all been posted to their 
proper ledger accounts as illustrated by Figures 8, 9 and 10. 
Each of these entries can be traced to its respective ledger 
account, and the entire procedure followed from beginning 
to end. 

Figure 7 represents in graphic form the particular ledger 
to which each entry is posted. 

Figure 8 portrays the various accounts contained in the 
Customers Ledger; figure 9, those in the Income and Ex- 
pense Ledger; and figure 10, those in the General Ledger. 



II. Books of Accounts 



DETERMINING AGREEMENT BETWEEN SUBSIDIARY 
AND CONTROLLING ACCOUNTS 

By drawing off the balances appearing on the various 
Customers Ledger sheets (figure 8) it will be seen that the 
total of these agrees with the balance in the "Accounts Re- 
ceivable" account in the General Ledger. This agreement 
should be determined each month. 

An addition of all the charges to the various sub-classi- 
tications of expense under each department, as represented 
by the four Expense Ledger sheets in figure 9, will provide 
a means of finding an agreement between such totals and 
the four controlling accounts with expenses in the General 
Ledger. It is necessary to determine this agreement each 
month. 

The means whereby an agreement may be determined 
with the "Accounts Payable" account in the General Ledger 
has previously been discussed at the bottom of page 20 in 
this chapter. 

BALANCE SHEET 

We are ready, now, to draw off a trial balance. This is 
always drawn off previous to making the closing entries 
thru the Journal, as illustrated by vouchers, Nos. 5 to 10 
inclusive, on form 5 of figure 7. 

Our books being in balance, we proceed to make the clos- 
ing entries for the month, and post these to their respective 
accounts in the General Ledger and Income and Expense 
Ledger. 

What we have left, then, are certain balances of open 
A.sset and Liability accounts in the General Ledger, since 
all income and expense items have been closed into the 
Profit and Loss account. From these we construct the fol- 
lowing Balance Sheet: 



28 II. Books of Accounts 

BALANCE SHEET 
UNIVERSAL BUILDING MATERIAL SUPPLY CO. 

Month of July, 1920 
ASSETS 

Cash in bank $21,044.45 

Accounts receivable 5,260.00 

INVENTORIES 

Brick $ 2,350.00 

Cement 739.00 

Gravel 225.00 

Lath 200.00 

Lime 320.00 

Sand 130.00 

Stone 585.00 

Miscellaneous 510.55 

5,059.55 

PLANT AND EQUIPMENT 

Land 10,000.00 

Buildings $15,000.00 

LESS: Allowance for 
depreciation 62.50 

14,937.50 

Machinery and equipment 6,050.00 

LESS: Allowance for 
depreciation 166.60 

5,883.40 

Office furniture and fix- 
tures 500.00 

31,320.90 
DEFERRED CHARGES 

Prepaid insurance 557.15 

TOTAL ASSETS $63,242.05 

LIABILITIES 
Accounts payable $11,036.00 



II. Books of Accounts 29 



ACCRUALS 






Accrued pay-roll 


$ 1,556.50 




Accrued taxes 


46.80 




Accrued freight 


56.00 


1,659.30 






CAPITAL STOCK 






Authorized and outstanding 




50,000.00 


Profit and Loss 




546.75 


TOTAL LIABILITIES 


$63,242.05 



PROFIT AND LOSS STATEMENT 

Inasmuch as the profit earned for the month, $546.75, is 
not sufficiently significant in itself as it appears on the Bal- 
ance Sheet, there being no indication therein of how it is 
arrived at, it is considered advisable to construct a Profit 
and Loss Statement as shown below. 

To do this, it is necessary only to proceed as follows: 

Ascertain the Sales, for each separate classification, for the 
current month, as shown in the column headed "Current 
Month," "Income and Expense Ledger" sheets (Figure 9). 

Deduct therefrom the cost of sales, which are found from 
the same ledger. 

Find gross profit for each sales classification, and in total. 

List the various expenses under each department, as shown 
by "Expense Ledger" sheets (Figure 9). 

Deduct the total of such expenses from the gross profit to 
arrive at the net operating profit. 

Add "Other Income'' and deduct "Other Deductions," as 
illustrated by "Income and Expense Ledger" sheets (Figure 9), 
and the result is the net profit for the period. 



:>0 II. Books of Accounts 

PROFIT AND LOSS STATEMENT 
UNIVERSAL BUILDING MATERIAL SUPPLY CO. 

Month of July, 1920 

Brick Sales $8,750.00 

LESS: Cost of brick sold 7,000.00 

$1,750.00 

GROSS PROFIT ON BRICK 

PER CENT. TO SALES 20. 

Cement Sales 2,340.00 

LESS: Cost of cement 1,950.00 

390.00 

GROSS PROFIT ON CE- 
MENT 

PER CENT. TO SALES 16.6 

Gravel Sales 200.00 

LESS: Cost of gravel sold 125.00 

75.00 

GROSS PROFIT ON 

GRAVEL 

PER CENT. TO SALES 37.5 

Lath Sales 600.00 

LESS: Cost of lath sold 450.00 

150.00 

GROSS PROFIT ON LATH 

PER CENT. TO SALES 25. 

Lime Sales 350.00 

LESS: Cost of lime sold. 270.00 

80.00 

GROSS PROFIT ON LIME 

PER CENT. TO SALES 22.9 

Sand Sales 600.00 

LESS: Cost of sand sold 375.00 

225.00 

GROSS PROFIT ON SAND 
PER CENT. TO SALES 37.5 



II. Books of Accounts 



31 



Plaster Sales 160.00 

LESS: Cost of plaster sold 160.00 

GROSS PROFIT ON PLAS- 
TER PER CENT. TO SALES..20. 

Returns and Allowances 

TOTAL GROSS PROFIT 

PER CENT. TO SALES 20. 

EXPENSES 
YARD 

Labor, yardmen, No. 5002 $418.25 

Fire insurance, No. 5042 38.50 

Taxes, No. 5044 33.05 

Depreciation, No. 5046 183.35 

Unclassified, No. 5081 1.00 

TOTAL YARD EXPENSES 

DELIVERY 

Labor, truck drivers, No. 6004 $338.25 

Repairs, trucks, No. 6033 .2.00 

Fire insurance No. 6042. 12.15 

Taxes, No. 6044 13.75 

Depreciation, No. 6046 45.75 

Freight, No. 6047 66.21 

TOTAL DELIVERY EXPENSES 

SELLING 

Salesmen's salaries, No. 7051 $200.00 

Salesmen's commissions, No. 7052 100.00 

TOTAL SELLING EXPENSES 

ADMINISTRATIVE AND GENERAL OFFICE 

Executives' salaries, No. 8061 $300.00 

Clerical salaries, No. 8062 200.00 

Postage, No. 8063 10.00 

Stationery and supplies, No. 8064 62.50 



40.00 



$2,710.00 
100.00 

$2,610.00 



$674.15 



$478.11 



300.00 



.32 77. Boohs of Accounts 

Collection and exchange, No. 8067 1.02 

Executives' expense, No. 8070 25.00 

Unclassified, No. 8081 2.50 

TOTAL ADMINISTRATIVE 

AND GENERAL OFFICE 

EXPENSES 601.02 

TOTAL EXPENSES $2,053.28 



NET OPERATING PROFIT $556.72 

PER CENT. TO SALES 4.27 

OTHER INCOME 



Discount earned 

Interest earned 


4.19 


$81.13 
17.50 


98.63 






OTHER DEDUCTIONS 

Interest paid 

Discount allowed 


$25.00 
83.60 


655.35 
108.60 






NET PROFIT 

PER CENT. TO SALES 




$546.75 



CHAPTER III 

Classification of General Ledger 
Accounts 

THE GENERAL LEDGER is the keystone of the entire 
double entry accounting system, and the various books of orig- 
inal entry, represented by figure 7 in Chapter II, are the 
channels thru which information flows on its way to the Gen- 
eral Ledger. It is the master book, and in it the proprietor 
should be able to find the synthetic groupings of the analy- 
tical labors of the books of original entry. It is the book 
in which is contained one account with every value, whether 
positive or negative (debit or credit), which is part of the 
business as a whole. 

It will be seen, by reference to the preceding chapter, that 
the books of original entry did not sort amounts, but merely 
lined them up, one after another, as the transactions crowded 
in during the day, too fast to be sorted. 

GENERAL LEDGER "FEEDERS" 

One book recorded transactions involving the receipt of cash 
(Cash Receipts Record, form 4, figure 7) ; another, disburse- 
ments of cash (Cash Disbursements Record, figure 2, form 7) ; 
another described purchases made (Accounts Payable and Dis- 
tribution Record, form 1, figure 7) ; another contained a de- 
scription of sales (Sales Analysis, figure 3', form 7) ; while 
still another contained the closing entries for the month. (Gen- 
eral Journal, figure 5, form 7). 

The reference column on each ledger page (figures 8, 9 and 
10) refers to the pages of these books on which the same 
transactions appear, from which it is evident that these records 



34 111. Classification of General Ledger Accounts 



carry the original entries, and are merely feeders for the pages 
of the ledger. 

It is seen that, by the use of these highly analytical books 
of original entry, the General Ledger itself, tho the most 
important book in double entry accounting, really requires but 
very little bookkeeping, since most of the entries appearing 
in it are made in monthly lump sum totals. 

WHAT THE GENERAL LEDGER INCLUDES 

The General Ledger is made up of three distinct classes of 
accounts, i. e., asset accounts, liability accounts and proprietary 
accounts. 
Asset Accounts comprise: 
All real values actually possessed, or earned and receivable, 
as well as all prepayments applicable to periods subse- 
quent to any particular period. 
Liability Accounts comprehend: 
1 — For Corporations: 

(A) Liabilities to outsiders. 

( B) The liability (proprietary) of the Corporation to 
the stockholders, at time of dissolution, for the 
following : 

1 — Outstanding capital stock. 
2 — Surplus earnings not declared in divi- 
dends. 
3 — Unapplied reserves. 
2— For Sole Proprietorships or Copartnerships : 

(A) Liabilities to outsiders. 

(B) Proprietorship accounts, comprised of: 

1 — Investment accounts. 
2 — Unapplied profits. 

3 — All other credit accounts not represented 
by liabilities to outsiders. 

ARRANGEMENT OF GENERAL LEDGER ACCOUNTS 

While it has been shown that the General Ledger is simple 
enough from a mechanical standpoint, it should be observed 
that the matter of arrangement of the various accounts is of 
real importance. 



///. Classification of General Ledger Accounts 35 

We have seen that any General Ledger account will fall into 
one of the three broad classifications, viz., asset accounts, liabil- 
ity accounts, and proprietary accounts, and it is this primary 
classification which offers a suggestion as to the proper ar- 
rangement of the General Ledger. 

All asset accounts should appear first, followed by liability 
accounts, and finally by proprietary accounts. Within these 
broad classifications, however, the various accounts should ap- 
pear in the order of their liquidity or readability, as shown by 
the following chart: 

CHART OF ACCOUNTS 

UNIVERSAL BUILDING MATERIAL SUPPLY CO., 

CHICAGO, ILL. 



ASSETS 
Current 

Cash 

Petty Cash Fund 

Cash on Deposit 
Notes Receivable 

Customers' Xotes 

Less : Allowance for Doubtful Accounts 

Personal Notes 
Accounts Receivable 

Customers' Accounts 

Less : Allowance for Doubtful Accounts 

Personal Accounts 
Inventories 

Brick 

Cement 

Coal 

Gravel 

Lath 

Lime 

Sand 

Stone 

Miscellaneous Merchandise 
Investments 

United States Liberty Bonds (an account with each issue) 
Stocks and Bonds (an account with each class) 



36 ///. Classification of General Ledger Accounts 



Permanent 

Land 
Buildings 

Less: Allowance for Depreciation 
Warehouse and Yard Equipment 

Less: Allowance for Depreciation 
Autos and Trucks 

Less : Allowance for Depreciation 
Wagons 

Less : Allowance for Depreciation 
Horses 

Less : Allowance for Depreciation 
Harness 

Less : Allowance for Depreciation 
Garage and Stable Equipment 

Less : Allowance for Depreciation 
Office Furniture and Fixtures 

Less : Allowance for Depreciation 

Other Assets 

Good Will 
Leaseholds 

Deferred Charges 

Unexpired Insurance 

Compensation Insurance Deposit 

Prepaid Interest 

Supplies 

Stationery and Office Supplies 

Accruing Operating Expenses 

Yard Expenses — Controlling Account 
Delivery Expenses — Controlling Account 
Accruing Commercial Expenses 

Selling Expenses — Controlling Account 

Administration and General Office Expenses— Controlling Ac 
count 

LIABILITIES 
Current 

Notes Payable 
To Banks 
To Brokers 

To Vendors (Purchased Material and Supplies) 
To Individuals 



III. Classification of General Ledger Accounts 37 



Accounts Payable 

To Vendors (Purchased Material and Supplies) 

To Individuals 
Dividends Payable 

Dividends Declared on Preferred Stock 

Dividends Declared on Common Stock 
Accruals 

Accrued Labor 

Accrued Salaries 

Unclaimed Pay Roll 

Accrued Commissions 

Accrued Taxes 

Accrued Compensation Insurance 

Accrued Interest 

Reserves 

Reserve for Income and Excess Profits Tax 

Reserve for Amortization of Good Will 

Reserve for Amortization of Leasehold 

Nominal (Proprietary) 

Capital Stock 

Preferred Stock Authorized 
Less : Unissued Preferred Stock 
Common Stock Authorized 

Less : Unissued Common Stock 
Surplus 

Surplus 

Profit and Loss Current 

INCOME AND DEDUCTIONS 
Sales 
Brick 
Cement 
Coal 
Gravel 
Lath 
Lime 
Sand 
Stone 

Miscellaneous 
Less: Returns (an account with each Sales Classification) 
Less: Allowances (an account with each Sales Classifica- 
tion) 



38 III. Classification of General Ledger Accounts 



Cost of Sales 
Brick 
Cement 
Coal 
Gravel 
Lath 
Lime 
Sand 
Stone 
Miscellaneous 

Other Income 

Interest Earned ■ 

Discount Allowed 

Other Deductions 

Discount Earned 
Interest Paid 

Difference Between Sole Proprietorships or Co-partnerships 
and Corporations 

In the case of a Sole Proprietorship or a Copartnership, the 
only change in the above chart would be with respect to 
the Nominal or Proprietary Accounts, under the "Liabili- 
ties" Classification 

These would show as follows : 
Nominal (Proprietary) 

John Doe Investment Account 

Less : John Doe Drawing Account 
Richard Roe Investment Account 

Less : Richard Roe Drawing Account 
Profit and Loss Current 

No Surplus Account is required, for the reason that the cur- 
rent profit for the year is credited in total to the proprietor's 
account, in the case of a Sole Proprietorship ; or, in the case 
of a Copartnership, it is credited to each of the partners on 
a basis of the ratio the investment of each bears to the total 
investment, or upon some other equitable basis called for by 
the Articles of Copartnership. 



III. Classification of General Ledger Accounts 39 



INFORMATION FURNISHED BY GENERAL LEDGER 

We now have the physical lay-out of the General Ledger ; 
but this is merely a means to an end — it has no significance, 
or at least not much, unless the proper entries are made 
therein ; and upon this alone in the last analysis, depends the 
accuracy or inaccuracy of the information which the General 
Ledger furnishes. 

Reduced to fundamentals, this information is comprised of : 
1 — Amount of cash on hand and on deposit. 
2 — How much is due you from others — amount of receiv- 
ables. 
3 — Amount of material inventories. 

4 — Amount tied-up in permanent plant and equipment. 
5 — Amount you owe to others — payables. 
6 — Value of your sales. 
7 — Cost value of goods sold. 
8 — Amount of monthly profit earned. 
9 — Amount of your expenses. 
10 — What makes up your expenses. 

From almost any bookkeeping arrangement it is possible to 
determine items 1 and 2, 4, 5 and 6 ; but if this much only is 
known, the complete story is not told ; in other words, your 
Ledger does not tell the whole truth. 

SIGNIFICANCE OF PERPETUAL INVENTORY 

Take, for example, item 3. How many building supply deal- 
ers know, from month to month, the actual amount in dollars 
and cents of the merchandise they are carrying in their yards? 

In the perpetual inventories of material in dollars and cents 
which appear in the Chart of Accounts under the head of 
"Inventories," lie the crucial tests for accuracy of any costs 
which are arrived at ; for, as will be seen in later chapters, 
labor and expense are readily proven weekly or monthly as to 
their accuracy in the total cost. 

It is to be noted that these figures of material on hand are 
obtained by starting with an actual inventory, adding monthly 



10 ///. Classification of General Ledger Accounts 

purchases, and deducting monthly the cost value of material 
sold; so that the remaining balance in any of these inventory 
accounts will, at the end of any monthly period, when the 
Balance Sheet is drawn off, give the value of merchandise on 
hand. 

In this connection, attention is directed to the fact, proven 
and indisputable, that a going inventory in the General Ledger, 
without an accurate stock record, provides no check against 
losses of merchandise or materials. Then, again, some means 
must be provided by which an accurate unit price is applied 
to the quantity of the various materials sold, in order to as- 
certain "Cost of Goods Sold." A stock record is the only 
means by which such a unit price can be determined. 

HOW BUSINESS FACTS ARE FURNISHED 

The failure to defer certain charges, such as Unexpired In- 
surance, and the like ; or to set up accruals, in the way of 
Taxes, Interest, etc. ; or to apply depreciation properly, has its 
effect upon the truth of the story told by your General Led- 
ger. 

The matter of expenses, and the close watch you should exer- 
cise over them, will be covered in a later chapter. 

Now, all these figures in your General Ledger are meaning- 
less, unless they lead somewhere, — unless they furnish you 
with the facts of your business situation. 

Finally, then, you should get a Balance Sheet, and Profit 
and Loss Statement at least monthly from the figures con- 
tained in your General Ledger. And the value of this to you 
lies in the ease with which you can determine the following 
questions : 

1 — What is the relation oi Accounts Receivable to Accounts 

Payable? 
2 — Is the Notes Payable item too large in proportion to 

Capital ? 
:; — Ts capital being impaired by losses? 



777. Classification of General Ledger Accounts 11 

4 — Is the amount of merchandise or goods on hand too 

large, or too small? 
5 — Is my stock moving fast enough? 
6 — What is the amount of my expenses, and how are they 

made up? 
7 — How much profit am I earning? 
S — Is this a true statement of the condition of my business' 

There is not much danger from other sources, if, having 
these two monthly statements, you study them intelligently ; 
for, knowing the real truth about your financial condition, you 
can trim your sails according to the gale. 



CHAPTER IV 



Posting of General Ledger 
Accounts 



PETTY CASH FUND 

THIS ACCOUNT will be opened by the issuance of a check 
for an amount sufficient to cover expenditures for, say one 
week, for postage, express, or far any other pay incuts which 
cannot conveniently be made by check'. 

There will be no further postings to this account until at 
some future time the amount of the fund is to be changed. 

As disbursements are made receipts or vouchers (figure 11) 
will be secured for each disbursement ; and at intervals, as 
often as may be necessary to reimburse the fund, a check will 
be drawn to the order of the cashier for the exact amount of 
the aggregate expenditures. The cashing of this check will 
bring the actual cash in the fund up to the original amount, and 
at any time the total of cash and vouchers should agree with 
the amount of the fund, as shown by the "Petty Cash Fund" 
account in the General Ledger. At the end 'of the month a 
check must be drawn covering all expenditures to date, for the 
reason that, unless this is done, the proper charges for the cur- 
rent month are not made. 

At the close of each month, or whenever the fund is replen- 
ished, a "Petty Cash Summary" (Figure 12) should be made 
up, showing the total vouchers, the aggregate amount of same, 
and the total amount chargeable to each expense or other ac- 
count for which payment was made. 

The "Petty Cash Summary" is then to be treated as tho it 
were a purchase invoice and entered in the "Accounts Payable 
and Distribution Record" (form 1, figure 7) 



77'. Posting General Ledger Accounts 13 

CASH ON DEPOSIT 

The bank account of the company will be charged, from the 
"Net Cash Received" column of the Cash Receipts Record 
(form 4, figure 7), with the total deposits for the month. 

It will be credited, from the "Checks" column of the Cash 
Disbursements Record (form 2, figure 7), with the total with- 
drawals for the month. 

As soon as statement is received from the bank covering the 
month's business, it should be checked up and a reconciliation 
made of the balance in the bank, as shown by the General Ledg- 
er, with the balance as shown by the bank's statement, taking 
into consideration outstanding checks. 

NOTES RECEIVABLE— CUSTOMERS 
This account will be charged, from the "General Ledger- 
Debits" column of the General Journal (form 5, figure 7) with 
each note as it is received; or, at the end of the month a sum- 
mary may be made, and the aggregate notes received from cus- 
tomers be passed to this account in one charge. 

It will be credited, from the "General Ledger-Credits" col- 
umn of the Cash Receipts Record, with the payment of each 
note ; or. at the month's end, these may be summarized, and 
the total credit passed in one entry. 

CUSTOMERS' NOTES DISCOUNTED 
This account .will be credited, either singly or by summary at 
the end of the month, with the face value of all notes receiv- 
able discounted thru banks or brokers. 

The entry will be passed thru the Cash Receipts Record, the 
credit being entered in the "General Ledger-Credits" column, 
and the corresponding charge to cash in the "Net Cash Re- 
ceived" column and to "Prepaid Interest" account in the Gen- 
eral Ledger-Debits" column. 

It will be debited, either singly or by summary at the end 
of the month, with all notes receivable for which banks or 
brokers have collected, the corresponding credit being passed 



44 IV. Posting General Ledger Accounts 

to "Notes Receivable" account. These entries will be made 
thru the "General Ledger-Debits" and the "General Ledger- 
Credits" columns of the General Journal. 

The necessity for this account exists by reason of the fact 
that, when notes are discounted, the firm who discounts them is 
under a contingent liability to the bank for the payment of such 
notes until they are paid by the maker. 

PERSONAL NOTES RECEIVABLE 

The same procedure is follozved here as in the case of Cus- 
tomers' A T otes Receivable, except that it is advisable to set up 
an individual account in the General Ledger for each such note. 

ACCOUNTS RECEIVABLE— CUSTOMERS 

This account will be charged, at the cud of the month, with 
the total sales billed to customers during the month. This total 
will be found in the "Accounts Receivable" column of the Sales 
Analysis (form 3, figure 7). 

It will be credited, from the "Accounts Receivable" column 
of the Cash Receipts Record, with the total cash receipts from 
customers. 

In addition to these charges and credits there may be in each 
month a few journal entries "which affect customers' accounts. 

After all postings have been made in the Customers' Ledger, 
the aggregate balances due from customers, as shown by Cus- 
tomers' Ledger, should be seen to agree with the balance of the 
"Accounts Receivable" account in the General Ledger. 

ALLOWANCE FOR DOUBTFUL ACCOUNTS 
This account should be credited, at the end of each month, 
thru the Accounts Payable and Distribution Record, with one- 
twelfth of the amount estimated to cover uncollectable accounts 
based on past experience, which amount should be charged to 
Had Debts expense account. 

As accounts subsequently prove uncollectable they should be 
charged to this account thru the General Journal. 



IV. Posting General Ledger- Accounts -A5 

ACCOUNTS RECEIVABLE—PERSONAL 

A separate account will require to be opened for each indi- 
vidual affected. 

INVENTORIES 

An account will be kepi with cacti class or kind of merchan- 
dise carried in stock. These accounts will be charged with the 
total purchases each month, as shown by the columns provided 
therefor on the Accounts Payable and Distribution Record. 

They will also be charged at the close of each month, with 
the total cost of goods returned by customers. 

They will be credited each month with the cost of all sales 
made, as shown by the "Cost Value" columns of the Sales 
Analysis. 

The balances of these accounts at the end of each month 
represent the inventory value of merchandise on hand, and 
should be verified by an agreement with the "Going Inventory" 
or "Stock Record." 

INVESTMENTS 

A separate account unit require to be opened for each invest- 
ment that the company may make in bonds or stocks of what- 
ever kind. 

LAND 

This account will be charged with the cost of all land acquired 
by the company; with the expenses incident to acquiring the 
title, such as legal fees, recording fees, etc.; zvith the cost of 
all improvements, sucli as grading, building roads, construe ling 
sidezvalks, curbs and gutters, excavating and piping for sewer 
water and gas lines, and with the. cost of securing surveys, trac- 
ings, maps, etc. 

In case of the sale of any real estate, this account should be 
credited with the cost, as shown by the books, of the real estate 
so disposed of, and the difference between this cost should be 
debited or credited, as the case may be, to the "Surplus" ac- 
count of the company. 



//'. Posting General Ledger Accounts 



The balance of this account is, of course, an asset, and should 
represent the cost of land owned by the company. 

BUILDINGS 

This account should be charged ivith the cost of buildings 
purchased or constructed ; with the cost of all additions to build- 
ings; with the cost of all alterations which increase the value 
or utility of buildings, and with the excess cost of replacing over 
the original cost of the part replaced. 

For example, if a slate roof replaces a wooden roof, or a 
concrete floor a wooden floor, the difference between the two 
costs should be charged to this account. 

This account should be credited with the value, as per books. 
of any property sold or destroyed. The difference between the 
book value and the amount realized on the sale should be 
charged to "Allowance for Depreciation" account. If the al- 
lowance is not sufficient, the difference should be charged to 
"Surplus" account. 

The balance of this account is an asset, and should represent 
the cost of buildings owned. 

WAREHOUSE AND YARD EQUIPMENT 

Charge this account with the cost of all equipment and tools 
purchased. Credit it with the cost, as per books, oi any article 
disposed of. The difference between the value, as per books, 
and the amount realized on the sale should be charged to "Al- 
lowance for Depreciation" account. The balance of this ac- 
count is an asset, and should represent the cost of equipment 
and tools on hand. 

Small or perishable tools, or tool replacements or repairs of 
any kind must not be charged to this account. 

AUTOS AND TRUCKS 

The cost of all automobiles and trucks should be charged to 
this account. It should be credited witb the cost, as per books. 



TV. Posting General Ledger Accounts A7 

of any automobile or truck disposed of. The difference between 
the value as per books and the amount realized on the sale 
should be charged to "Allowance for Depreciation" account. 

The balance of this account is an asset, and should represent 
the cost of automobiles and trucks on hand. 

WAGONS 

This account should be charged zvith all wagons purchased. 
It should be credited with the cost, as per books, of all wagons . 
sold or scrapped, the difference between the book value and 
the amount realized being carried as a charge to "Allowance 
for Depreciation" account. 

The balance of this account is an asset, and should represent 
the cost of wagons on hand. 

HORSES 

Charge this account with the cost of horses bought. Credit 
it with book value of horses sold or lost, and carry the dif- 
ference between book value and the amount realized as a 
charge to "Allowance for Depreciation" account. 

The balance of this account should represent the cost of 
horses on hand, and is. of course, an asset. 

HARNESS 

All harness purchased should be charged to this account, and 
harness disposed of credited to it, at its book value. The 
difference between the value, as per books, and the amount 
realized should be charged to "Allowance for Depreciation" 
account. 

The balance of this account should represent the cost of 
harness on hand. 

GARAGE AND STABLE EQUIPMENT 
This account should be charged with all equipment purchased 
for garage and stable. It should be credited as per books, with 



48 IV. Posting General Ledger Accounts 



any articles disposed of. The difference between the book 
value and the amount realized on the sale should be charged 
to "Allowance for Depreciation" account. 

Equipment repairs must not be charged to this account. 

OFFICE FURNITURE AND FIXTURES 

This account should be charged with equipment purchased 
for the office. Care should be taken to see that no office sup- 
plies are charged to this account. 

ALLOWANCE FOR DEPRECIATION (AN ACCOUNT 

WITH EACH PERMANENT ASSET EXCEPT 

REAL ESTATE) 

These accounts should be credited, at the close of each month, 
with one-twelfth of the annual depreciation, which should be 
charged to expense accounts, thru the Accounts Payable and 
Distribution Record. 

When permanent assets are discarded, replaced or sold, the 
difference between original cost and sales price or scrap value 
should be charged to these accounts to the extent that de- 
preciation has been provided. 

In other words, the sale or disposal of any permanent as- 
set will be credited to the particular asset account at the same 
value at which it was originally charged thereto. The corre- 
sponding debit will be passed to cash, for the amount of cash 
actually received, and to "Allowance for Depreciation" account. 
for the amount of depreciation set up against that particular 
asset; and the difference, if any, between the total of the* 
debits to cash and to "Allowance for Depreciation" account 
and the total credit to be passed to the asset account, will 
be debited to "Surplus" account. Or, if the amount received 
in cash plus the amount set up for depreciation exceeds the 
cost value of the asset, the difference will be credited to "Sur- 
plus" account. 



CHAPTER V 

Posting to General Ledger 
Accounts 

( Concluded) 

GOOD WILL 

THIS account usually represents the excess of liabilities 
plus capital stock and surplus over tangible assets at the time 
of commencement or reorganization of a business. Any sub- 
sequent charges or credits to this account should be made only 
on authority of the directors of the company. 

LEASE HOLDS 

If a lease has been purchased, the purchase price should 

appear on the General Ledger as an asset. This applies only 

in cases where a lease has been effected for a definite term of 

years. * 

UNEXPIRED INSURANCE 

This account will be charged with all insurance premiums 
paid, and credited monthly, thru the Accounts Payable and Dis- 
tribution Record, with one-twelfth of the annual expirations 
on insurance. Thus, the balance of this account, at the end 
of each month, will represent the proportion of insurance pre- 
mium paid in advance. 

COMPENSATION INSURANCE DEPOSIT 

This account will be charged with the payment of compen- 
sation insurance premiums, and credited at the end of the period 
covered by debit to "Accrued Compensation Insurance", ac- 
courit. 



50 V. Posting General Ledger Accounts 



PREPAID INTEREST 

When notes are discounted at the bank and interest is paid 
in advance, the total amount of interest so paid should be 
charged to ''Prepaid Interest" account. Then, at the end of 
each month, the amount of interest applicable to that month, 
should be charged to expenses and credited to this account 
thru the Accounts Payable and Distribution Record. 

SUPPLIES 

Charge this account with the cost of all supplies purchased. 
Credit it, at the end of the month with the cost of supplies used, 
and charge expenses thru the Accounts Payable and Distribu- 
tion Record. 

STATIONERY AND OFFICE SUPPLIES 

This account will be charged with all stationery and office 
supplies purchased. . It will be credited, at the month's end. 
with the cost of such supplies used, the corresponding credit 
being passed to expenses thru the Accounts Payable and 1 )is- 
tribution Record. 

YARD EXPENSES— CONTROLLING ACCOUNT 

This account will be charged monthly with the total of ware- 
house and yard expenses, from the ''Yard Expenses" column 
of the Accounts Payable and Distribution Record. 

The distribution of these expenses is shown in "Chart of 
Expenses Classifications." (See Chapter VI.) 

The totals posted to this account must be given effect, in 
detail, in the Income and Expense Ledger, and the aggregate 
of the totals as per sub-classitications of expenses must be 
agreed with this account monthly. 

This account will be closed into "Profit and Loss current" 
account at the end of the month by journal entry. 



Posting General Ledger Accounts 



DELIVERY EXPENSES— CONTROLLING ACCOUNT 

To be charged monthly with the total delivery expenses, from 
the "Delivery Expenses" column of the -Accounts Payable and 
Distribution Record. The distribution of these expenses is 
shown on "Chart of Expense Classifications." The total of 
Expense Ledger classifications must be agreed with this account 
monthly. 

At the end of the month, this account will be closed into 
"Profit and Loss Current" account by journal entry. 

SELLING EXPENSES— CONTROLLING ACCOUNT 

To be charged monthly with the total of selling expenses, 
from the "Selling Expense" column of the Accounts Payable 
and Distribution Record. The "Chart of Expense Classifica- 
tion" gives a distribution of these expenses. The total of 
Expense Ledger classifications must be agreed with this account 
each month. 

By journal entry, at the close of the month, this account 
will be closed into "Profit and Loss Current" account. 

ADMINISTRATION AND GENERAL OFFICE EXPENSES- 
CONTROLLING ACCOUNT 

To be charged monthly, from the "Administrative and General 
Office Expenses" column of the Accounts Payable and Distri- 
bution Record, with the total of all expenses applicable to the 
business as a whole, and not chargeable as expenses to yard, 
delivery or selling, as shown by "Chart of Expense Classifi- 
cations." The total of Expense Ledger classifications must be 
brought into agreement with this account monthly. 

This account will be closed into "Profit and Loss Current" 
account, by means of journal entry at the end of each month. 

NOTES PAYABLE— TO BANKS, BROKERS, VENDORS 
AND INDIVIDUALS 

These accounts should be credited each month with the aggre- 
gate amount of notes payable issued. They should be charged 



V. Posting General Ledger Accounts 



with the total amount paid during the month on account of 
notes payable. 

In the case of notes payable to individuals a separate ac- 
count should be opened for each individual affected. 

ACCOUNTS PAYABLE— VENDORS 

This account will be credited, at the end of each month, 
with the total of the "Accounts Payable" column on the Ac- 
counts Payable and Distribution Record, and charged with the 
total payments on account as shown by the ''Accounts Pay- 
able" column on the Cash Disbursements Record. 

The balance in this account, at the end of the month, should 
be verified by seeing that it agrees with the aggregate total 
of all open items showing on the Accounts Payable and Dis- 
tribution Record ; that is, a total of all items opposite which no 
check number has been entered in the "Paid by Check Num- 
ber" column. 

ACCOUNTS PAYABLE— INDIVIDUALS 

It is considered advisable to set up a separate account for 
each individual affected. 

DIVIDENDS PAYABLE— ON PREFERRED AND COMMON 
STOCK 

When dividends are declared by the board of directors, credit 
these accounts, and debit "Surplus" account. 

When dividends are paid these accounts are debited. 

ACCRUED LABOR 

This account should be charged with all checks drawn for 
pay-roll purposes, and credited with the total amount of labor 
paid for during the month, at which time this used labor is 
charged to expense accounts thru the "Accounts Payable" ana 
Distribution Record. 

The balance in this account represents the difference between 
the labor used and the labor paid for. 



Vi Posting General Ledger Accounts 53 



ACCRUED SALARIES 

The same procedure applies here, as in the case of "Accrued 
Labor." 

UNCLAIMED PAY-ROLL 

This account is provided for showing in the General Ledger 
the liability which may exist for unclaimed wages. 

ACCRUED COMMISSIONS 

Credit this account, at the close of each month, with the 
aggregate amount of commissions earned, based upon the sales 
effected by salesmen. 

Debit with the money paid to salesmen on account of their 
commissions. 

ACCRUED TAXES 

Credit this account monthly with one-twelfth of the annual 
charge for taxes, and charge this amount to expenses. 
Debit with the check when issued in payment of taxes. 

ACCRUED COMPENSATION INSURANCE 

This account will be. credited monthly with the amount of 
compensation insurance accrued, the corresponding charge being 
made to expenses. 

This is arrived at by multiplying each $100.00 of pay-roll by 
the rate stated in the compensation insurance policy for the 
particular kind of labor employed. 

At the end of the policy period, the total amount showing in 
the "Compensation Insurance Deposit" account will be credited 
thereto and charged to this account. 

The balance therein will represent, either the additional pre- 
mium due the insurance company, or the amount due you for 
overpayment. 

ACCRUED INTEREST 

This account should be credited with interest accrued monthly 



54> V. Posting General Ledger Accounts 



on notes payable, which amount will be charged to ''Interest 
Paid" account. 

Later, when the interest payments are actually made, they 
will be charged to this account, and not to expense. 
RESERVE FOR INCOME AND EXCESS PROFITS TAX 

At the end of the year this account is credited with the 
amount of such taxes due the Federal Government, and the 
corresponding debit is passed to "Surplus" account. 

When these taxes are actually paid this account is charged. 

RESERVE FOR AMORTIZATION OF GOOD WILL 

This account is provided in case the' company wishes to write 
off its good will over a period of years. The corresponding 
charge would go to current expenses, or it might be made 
directly to "Surplus" account. 

RESERVE FOR AMORTIZATION OF LEASE HOLD 

If a lease has been purchased, and the purchase price appears 
in the General Ledger as an asset, the expired portion should 
be written off periodically. 

In this case, one-twelfth of the annual expiration amount 
should be credited to this account each month, the correspond- 
ing debit being passed to expenses. 

CAPITAL STOCK— PRFERRED AND COMMON 

These accounts should at all times stand credited with the 
total authorised capital stock of the company. 

In case part of the capital stock is unissued, the unissued 
part should be carried as a debit in the "Unissued Preferred 
Stock" and "Unissued Common Stock" accounts. 

SURPLUS 

This account is to be credited, during the year, with any 
revenues or receipts not applicable to the year then current. 



V. Posting General Ledger Accounts 55 

It should be credited, at the end of the year with the net 
profits for the year, as shown by the "Profits and Loss Cur- 
rent" account. 

It should be charged with all dividends declared, and with 
losses sustained not properly chargeable against the results of 
the current year. 

PROFIT AND LOSS CURRENT 

This account should be credited monthly with all revenues, 
and charged with costs of sales and expenses. 

At the end of each fiscal year it should be closed into "Sur- 
plus" account. 

SALES— BRICK, CEMENT, ETC. 

These accounts should all be credited at the end of each 
month, with the total revenues for the month as shown by the 
various "Sale Value" columns of the Sales Analysis. 

The balances should be closed into "Profit and Loss Current" 
account by journal entry, at the close of each month. 

SALES RETURNS 

These accounts, of which there is one for each "Sales" ac- 
count, should be charged with the monthly amount of merchan- 
dise returned, at the selling price,, at which time the corre- 
sponding credit is passed to individual customers' accounts. 

They should be credited with the monthly amount of mer- 
chandise returned, at the cost price, the corresponding charge 
being made to the various "Inventory" accounts. 

The balances will be closed into "Profit and Loss Current" 
account at the end of the month by journal entry. 

SALES ALLOWANCES 

These accounts should be charged monthly with the total 



.")() V. Posting General Ledger Accounts 

amount of sales allowances, the corresponding credits being 
passed to individual customer's accounts. 

They will be closed into "Profit and Loss Current" account 
at the end of the month by journal entry. 

COST OF SALES— BRICK, CEMENT, ETC. 

Each of these accounts will be charged, at the end of the 
month, with the totals, as shown by the various "Cost Value" 
columns in the Sales Analysis. 

At the month's end, they should all be closed into "Profit 
and Loss Current" account by journal entry. 

INTEREST EARNED 

Credit this account with income from interest earned. 
It will be closed into "Profit and Loss Current" account 
monthly by journal entry. 

DISCOUNT EARNED 

Credit this account with income from purchase discount 
earned. 

Close it into "Profit and Loss Current" account at the month's 
end, by journal entry. 

INTEREST PAID 

Charge this account with all interest paid, and with interest 
accrued, at the time credit is passed to the "Accrued Interest" 
account. 

At the end of each month, this account will be closed into 
"Profit and Loss Current" account by journal entry, 

DISCOUNT ALLOWED 

Charge this account with all discounts taken by customers. 
Monthly by journal entry this account will be "closed into 
"Profit and Loss Current" account. 



V. Posting General Ledger Accounts 



BALANCE SHEET AND PROFIT AND LOSS STATEMENT 

It will be noted that every account in the "Income and 
Expense Deductions" section of the General Ledger, as 
shown by "Chart of Accounts" presented in Chapter III, 
together with all operating and commercial expenses are 
disclosed into "Profit and Loss Current" account at t'he end 
of each month. 

By this means the profit for each month is determined, 
which serves to balance the "Assets" and "Liabilities"' sec- 
tions of the General Ledger. 

A Balance Sheet and Profit and Loss Statement can then 
be made up, in the manner described in Chapter II, which 
will give a clear, concise and easily read statement of your 
business. 



CHAPTER VI 

Cost Finding — Analysis of 
Operating Expenses 

THE OUTSTANDING INDUSTRIAL PROBLEM 

Perhaps the greatest problem before American industry 
today is that of determining accurate costs. Generally 

speaking, the greatest handicap to efficient business oper- 
ation is that of incomplete, inaccurate and inadequate in- 
formation relative to costs and profits. 

When consideration is given to the fact that the majority 
of business concerns are operated without adequate informa- 
tion relative to their conditions, and determine their true 
positions only at the time of the annual inventory, it is not 
surprising that so many firms are wrecked, but rather that 
so many inefficiently equipped business vessels do arrive at 
the port of satisfactory profits. 

So long as all the competitors in a given industry are 
equally in the dark as regards costs, the handicap resulting 
from this condition is more or less uniform. But this situ- 
ation is entirely changed when some of the more progressive 
competitors energetically and systematically undertake the 
introduction of reliable cost methods; and, instead of work- 
ing partly by intuition, partly by guesswork and partly on 
incomplete and inaccurate information, operate their busi- 
ness on a basis of accurate and complete cost data. When 
this condition applies, all other things being equal, the pro- 
gressive merchant cannot fail to outstrip his less efficient 
competitors. 

THE CAUSES OF INDUSTRIAL DISTRESS 

If we eliminate such considerations as lack of capital, mi- 



J'L Cost Finding— Analysis of Expenses 59 

wise credits, extravagance, fraud and the like, there are 
three factors which, whether considered separately or in 
combination, can cause distress to any industry. 

These are: 

1 — Failure to ascertain correct costs. 

2 — Failure to base selling prices on correct costs. 

3 — Lack of unifomity in costing or in bidding on work. 

PRICE FIXING UNNECESSARY AS WELL AS ILLEGAL 

Agreements as to price are a difficult thing to bring about. 
Beyond this, fixing the price has been declared illegal. In 
view of this, it is evident that some other means must be 
found to stabilize the selling price. A careful study of 
the subject leads to this conclusion: 

Agreement as to price is not necessary. Comparison of 
bids is not altogether an essential. Combinations to control 
local situations is not the solution. The one way to con- 
trol the situation is this: Such uniformity in ascertaining 
and compiling costs and figuring profits as to insure against 
wide differences in prices — a measure making possible sta- 
ble prices without any general agreement or secret under- 
standing. 

WHAT IS A COST SYSTEM? 

A cost system is a tool of management; and, like any other 
effective tool, it must be carefully designed to suit the par- 
ticular purpose, and operated and administered with dis- 
crimination and purpose. Such a cost system will produce 
results -which will abundantly justify, on a pure financial 
basis, every penny of expense involved in its installation 
and operation. 

Time was when the proprietor knew how much money 
there was in the bank for him to draw upon, and that was 
the way he knew whether he was making money or not. 



60 VI. Cost Finding — Analysis of Expenses 

But, today, the margin is too close. The business man can- 
not afford to keep any considerable amount of money on 
hand, at least not enough so that he can afford to be with- 
out information as to just how he stands. Beyond this, 
he knows that, today, his cash account has little to do with 
his prosperity. 

And it is now too late to lock the door after the horse 
is stolen; there are not enough horses so that he can afford 
to lose any. 

The present day manager needs to know tomorrow where 
he spent the money today — needs to know, month by month, 
whether or not he is earning an adequate profit. Good man- 
agement today, is predicated on a cost system which acts as 
an INSURANCE that cannot be secured in any other way. 

WHAT CONSTITUTES COST? 

The word "cost" is sometimes very loosely used. Used 
in its true sense, it properly includes the total expenditure 
of carrying on the business; not alone in money, but in ma- 
terials and equipment. A cost system to be productive of 
dependable results must, above all else, include in its totals 
every single element of cost. Thus the wearing out of ma- 
chinery and equipment, necessitating its final replacement, is 
as much an expenditure of the business as the payment of 
workmen's wages. If depreciation is omitted, reliable costs 
are not possible, nor will the anticipated net profits be nearly 
realized. 

Likewise, the proprietor's salary should be included, for 
without this, even tho the earnings of the business seem 
sufficient, at the end of the year profits are greatly reduced 
by the amount withdrawn by the proprietor. 

Then there are uncollectible accounts or bad debts. These 
are inevitable, and the business man who does nol include 
in his costs predetermined losses thru this means is fooling 
himself to say the least. 



VI. Cost Finding — Analysis? of Expenses 61 

There are certain expenditures that must be made, if the 
particular concern is to keep going and stay in business. 
It is easy for the business man to see where some of his 
money goes — in the purchase of material, labor, office sal- 
aries, rent and such like items which are obvious — but the 
universal experience is that it is hard for the average building- 
supply dealer to see where so much money goes as appears 
to sink out of sight. The usual question at the end of the 
year, with those who have no means of determining their costs, 
is "Where have our profits gone?" 

This is a question that has caused more ill feeling, and more 
business heart breaks, than almost anything else that enters 
into the operation of a business. There is something pathetic 
in the wild search that is so often made at the end of the year, 
for some large item, which supposedly must have been left out 
of the inventory, to account for the wide difference between 
actual and anticipated profits. 

THE TRUE DEFINITION OF COST 

This, then, may be stated as a definition of cost for the 
building supply industry: That portion of the total expense 
which properly belongs to each and every class of merchan- 
dise handled constitutes cost. 

In other words, the cost problem lies in the proper appor- 
tionment or distribution of expense to departments and to 
lines of merchandise. 

The first steps, therefore, in the proper mapping out of a 
cost system are to determine the logical departments of the 
business. In the building supply industry these are: 

1 — Yard and warehouse. 

2 — Delivery. 

3— Selling. 

4 — Office and Adiministrative. 

Each of these departments has its own expense variously 



62 VI. Cost Finding — Analysis of Expenses 

subdivided and classified as to its bearing upon the business 
as a whole. 

By establishing the classification of expense accounts, in 
detail, on a basis of the various departmental divisions, a 
means is found by which expenses may be so analyzed as 
to make them readily available for application to the various 
products handled. 

The accounts are classified or numbered to correspond 
with the various departments of the business. In illustra- 
tion, suppose, instead of using the names of departments, 
as shown above, we use numbers instead. Yard and Ware- 
house is, therefore, department No. 1; Delivery, department 
No. 2; Selling, department No. 3; and Office and Adminis- 
trative, department No. 4. 

Our second step is likewise simple. For the expense ac- 
counts, as labor, maintenance, insurance, taxes, depreciation, 
etc v numbers are also substituted for names. 

EXPENSE ACCOUNTS CLASSIFICATION 

By combining these two we are able, with a degree of 
case and facility not found otherwise, to signify any sort 
of expense chargeable to any particular department of the 
business, as illustrated by Chart of Expense Classifications 
(figure No. 13). 

When classifying a charge for, say, repairs to warehouse, 
the classification would be 105, in which "1" would be the 
department number, and "05" the particular kind of expense 
chargeable to the Yard and Warehouse department. Like- 
wise repairs to stables or garages would be classified as 
205, and repairs to office buildings as 405, and so on thru- 
out the entire range of expenses. This is an extremely 
simple, and yet entirely adequate, method of classifying, and 
makes possible a rapid sorting of charges to specific accounts 
and subclassifications of expense. 

It will be understood that there is nothing fixed or static 



VI. Cost Finding — Analysis of Expenses 63 

in the chart presented herewith. Expense Classifications 
may be indefinitely extended to include any number of 
sub-divisions of the particular kind or class of expense; 
altho, in the judgment of the author, the sub-divisions 
presented in the chart are sufficient for all practical pur- 
poses. 

These sub-divisions of expense, as 101, 201, 102, 203, etc., 
etc., should not be understood to be General Ledger ac- 
counts. They are used for the purpose of arriving at cer- 
tain charges more readily, and for the further purpose of 
exercising control over the business, and are analyzed 
thru a subsidiary Expense Ledger, where each classifica- 
tion is considered as a separate account, as illustrated by 
figure No. 9 in Chapter II. This subsidiary ledger is used for 
analyzing the charges of the General Ledger controlling ac- 
counts with expenses (see figure No. 10 in Chapter II) and 
aside from that, does not affect the General Ledger accounts 
in any way. 

BASIS OF COST FINDING SYSTEM 

The basis of an adequate cost finding plan has now been 
presented. 

Chapter VII will analyze and explain each expense ac- 
count shown by figure No. 13. 

Subsequent Chapters will present the means by which 
departmental costs are connected with the various products 
handled, so that the profit in each class of merchandise sold 
may be determined. 



CHAPTER VII 

Classification of Expenses 

There are certain expenses of doing business that must be 
paid, and the individual dealer cannot afford to overlook any 
of these in arriving at his costs. A list of the expenses that 
make up costs in the building supply industry, variously sub- 
divided as to particular expense items, and as to departments 
of the business, was presented in a Chart of Expense Classifica- 
tion in Chapter VI. We have now to consider, in detail, the 
charges to each of the accounts shown thereon. 

LABOR 

While it is not at all possible to classify labor, in and of 
itself, as a commodity, attention is directed to the circumstance 
that it is purchased and paid for precisely like a commodity. 

A ton of coal or a thousand brick are purchased at so much 
per ton or per thousand ; an hour of labor, at so much per 
hour. If the hour of labor is expended in unloading the thous- 
and brick, the cost of the brick is added to by the precise 
amount of money paid for the hour of labor. In other words, 
when the thousand brick are sold, the sales price must be 
large enough to cover the first cost of the brick, plus the 
labor of handling, if it is expected to so much as break even 
on the deal. This will hold true, not alone with respect to 
labor, but also with respect to every other element of expense 
which affects the receiving, storing, handling, selling and de- 
livery of brick, or of any other product in which you deal. 

Labor expense is made up of all the miscellaneous labor em- 
ployed in the business, such as foremen, yardmen, teamsters 
and truck drivers. 

This expense is variously distributed to both the Yard and 
Warehouse, and Delivery departments, depending upon the par- 



VII. Classification of Expenses 



ticular department in which the individual workman is em- 
ployed. 

MAINTENANCE 

Maintenance represents the necessary expenditure in the way 
of upkeep. Repairs made to buildings, equipment, wagons and 
trucks, iii order that their original efficiency may be maintained, 
together with other expenditures for feed, gasoline and oil, 
tires, veterinary services, etc., are all maintenance charges and 
should be charged to the various maintenance accounts as 
shown by the Chart of Expense Classifications. 

Repairs to buildings and repairs to equipment affect Yard 
and Warehouse, Delivery and Office and Administrative depart- 
ments ; supplies and expense both Yard and Warehouse, and 
Delivery departments, while the balance of maintenance items 
are charged to Delivery department only. 

INSURANCE 

Insurance is a prepaid item, or deferred charge. The ac- 
count in the General Ledger is known as "Unexpired Insur- 
ance." 

Fire and tornado insurance is based on the valuation of 
buildings, equipment and merchandise on hand at a certain 
rate per $1,000.00 of value, which varies according to different 
industries. 

A low insurance rate is indicative of a properly constructed 
building, as well as one in which a sprinkler system is in- 
stalled ; a high insurance rate for contrary reasons. 

Where buildings are rented, insurance would be carried on 
equipment and merchandise only. 

One twelfth of the annual expirations on insurance will be 
charged, monthly, to "Fire and Tornado" insurance expense, 
and credited to ''Unexpired Insurance" account in the General 
Ledger. 

I lability Insurance is a prepaid item. The account in the 
Oiieral Ledger is known as "Compensation Insurance De- 



/'//. Classification of Expenses 



posit," and generally includes both liability insurance and 
compensation insurance. 

This insurance is based on a certain rate per $100.00 of pay- 
roll, the total payroll for six months, or a year, being esti- 
mated in advance, for purposes of premium computation; later, 
when the actual amount paid in wages is determined, an ad- 
justment is made as between the estimated and actual amount. 

Each month the actual amount of labor consumed is com- 
puted at the liability insurance rate or rates per $100.00. The 
result is charged to "Liability" insurance expense and credited 
to "Accrued Compensation Insurance" account in the General 
Ledger. At the end of the six months, or annual period, the 
''Compensation Insurance Deposit" account is balanced off 
against the "Accrued Compensation Insurance" account, and 
the difference, either debit or credit, represents the adjustment 
necessary to be made with the insurance company. 

These items affect both the Yard and Warehouse, and De- 
livery departments. 

TAXES 

This is an accrual (the reverse of a prepaid or deterred 
item). Liabilities accrued, but not due, are recorded, so that 
the charges represented by them may be taken into account as 
an expense during the period in which they originate. 

A certain amount, therefore, based on the experience of past 
years, is credited to "Accrued Taxes" account in the General 
Ledger and charged to expense, monthly. 

For example, if it were found that taxes to the amount of 
$1,200.00 had been paid the previous year, $100.00 would be 
accrued each month. 

Taxes are assessed on the value of the land, buildings. 
equipment and merchandise; or, if the plant is rented, on 
equipment and materials only. 

The amount varies, in different localities, with the tax rate 
applicable, and tin' date upon which liability for taxes arises 



VII. Classification of Expenses 



depends upon the provisions of the statutes regulating the 
same. 

Yard and Warehouse, and Delivery departments are both 
affected by Real and Personal Taxes, while Corporate Taxes 
affect Office and Administrative only. 

DEPRECIATION 

Repairs alone will not keep buildings and equipment in their 
original condition. Inevitably the time comes, when, no matter 
how carefully they have been repaired, a particular wagon, or 
truck, or any other piece of equipment must be replaced hy a 
new one, and a particular building torn down and a new one 
erected. 

Hence the need for what is termed "Depreciation/' Over 
the years when the original building or equipment is in use, a 
sufficient sum must be set aside yearly to cover the cost of re- 
placement with a new one. 

There are four causes for depreciation : 

1 — Property depreciates as a result of its normal use. 
2 — Property depreciates as a result of age and physical 

decay. 
3 — Property depreciates due to the fact that certain of 
its component elements become inadequate to serve 
the purpose for which they were originally installed. 
4 — Property depreciates because certain of its parts, 
such as equipment, become obsolete. 
The importance of this subject of depreciation can hardly 
be exaggerated. Any proprietor or manager who loses sight 
of the fact that his equipment, no matter how well it may be 
kept in repair, is constantly lessened in value, will some day be 
confronted with a very serious problem. 

An "Allowance for Depreciation" account is therefore set 
up for each class of permanent asset except land, into which 
is credited, monthly, one-twelfth of the annual depreciation of 



(38 J' II. Classification of Expenses 

the asset, the corresponding debit being charged to the various 
classifications of "Depreciation" expense. 

Building and equipment depreciation is a part of the costs 
of both the Yard and Warehouse, and Delivery departments, 
while the balance of depreciation items affect Delivery depart- 
ment only. 

RULES FOR MAINTENANCE AND DEPRECIATION 

That the principles of maintenance and depreciation may be 
clearly grasped, the following rules are laid down : 

1 — The original cost of the asset, together with the re- 
pairs and upkeep of the asset, are a proper charge to 
expense during the life of the asset. 
2 — These two items of depreciation and maintenance 
must be so spread over the entire life of the asset, to 
insure to each accounting period its proper propor- 
tion. 

RENT 

When the plant is rented, the rental charge is properly in- 
cluded as a part of the expense, and the. proper proportion of 
such annual rental should be charged to expense, monthly. 

In this case there would, of course, be no taxes, insurance, 
or depreciation to be figured on the buildings. 

In this connection attention is directed to the fact that in- 
surance, taxes, depreciation and repairs on the plant owned 
by the building supply dealer takes the place of rental. 

All four departmental divisions of the business are affeet r :d 
by this expense. 

TEAM AND TRUCK HIRE 

This expense comprises all expenditures for teaming or 
hauling done by other than the teaming equipment owned by 
the business. 

This item affects deliverv costs only. 



VII. Classification of Expenses 69 



EXECUTIVE SALARIES 

The salaries paid to executives, managers or proprietors 
make up this expense. 

It should not be overlooked that, even tho a particular 
business is being operated as a Sole Proprietorship, or as a 
Co-partnership, the proprietor or proprietors should charge to 
expense, monthly, the amount of money they withdraw from 
the business. 

Executives' salaries are, in most cases, both a selling expense 
and an administrative expense ; that is to say, that the time 
of the individual executive is generally divided between ad- 
ministrative and selling functions. 

OFFICE SALARIES 

This expense is made up of all salaries paid to office or 
clerical help, and is wholly an office and administrative charge. 

SALESMEN'S SALARIES 

All salaries paid to salesmen are included in this expense, 
which is a charge to selling only. 

COMMISSIONS 

When commissions are paid to salesmen (or to agents), the 
amount of such commissions, as they accrue, make up the 
total of this expense. 

Note the phrase, "as they accrue." By this is meant that 
this expense should not be charged with commissions, when 
such commissions are paid; but, rather, that commissions 
should be figured monthly, "Accrued Commissions" account 
in the General Ledger credited with the total amount of com- 
missions due, and the corresponding charge made to expense. 
When payment is made "Accrued Commissions" account is 
charged. 

This is a selling item. 



70 VII. Classification of Expenses 



AUTO EXPENSE 

This expense is made up by expenditures for gasoline, oil, 
tires, repairs, etc. for automobiles operated by the business. 

In most cases it is a selling expense, and has been so shown 
on the Chart of Expense Classifications. 

ADVERTISING 

All expenditures for advertising make up the total of this 
expense. 

By advertising is meant such copy, signs or other media 
as may be prepared and used for the purpose of informing 
the buying public what kinds of merchandise the particular 
concern deals in — in other words, any space which is used for 
general publicity purposes. 

Help wanted advertisements, space paid for in church or 
charity organization publications, and the like, should not be 
charged to this account. 

This item affects selling costs alone. 

TRAVELING EXPENSE 

All railroad and pullman fares, taxi or bus fares, hotel bills. 
meals, tips, in short, all general out-of-pocket expenditures 
made by executives and salesmen in traveling are included in 
this expense. 

Traveling expenses are, in most eases, both a selling expense 
and an administrative expense. 

POSTAGE 

This expense is made up of all postage purchased, and is an 
Office and Administrative item. 

TELEPHONE AND TELEGRAPH 

All telephone bills, and the cost of all telegrams make up 
the total of this expense. 

Care should be exercised to see that the current month's 



VII. Classification of Expenses 



bills for telephone and telegrams are charged to this expense 
for the same month. 

Office and Administrative department alone is affected by 
this expense. 

WATER, FUEL AND LIGHT 

This is made up of all bills for water, fuel and light. 

In the case of fuel used from the supply on hand for sales 
purposes, some means should be taken of determining the 
value of the fuel so used each month, in order that credit may 
be passed to the "Inventor}" account, and the corresponding 
charge made to expense. 

These items affect Office and Administrative expense only. 

CREDIT AND COLLECTIONS 

The expense in connection with collecting outstanding ac- 
counts and notes receivable, together with such expenditures 
as are made for credit information purposes, make up this 
item. 

It is an Office and Administrative cost. 

DUES AND SUBSCRIPTIONS 

Association or other dues and fees, and subscriptions to 
trade or technical journals make up this expense. 

It should be borne in mind that subscriptions to charity 
are not chargeable to this account. 

This is an Office and Administrative cost. 

LEGAL AND PROFESSIONAL SERVICES 

This expense is comprised of attorney's fees, auditors' and 
accountants' fees, and the expenditures in connection with any 
other professional service. 

Office and Administrative department alone is affected by 
this item. 



I' 11 . Classification of Expenses 



BAD DEBTS 

Considering that losses from had debts, or uncollectible ac- 
counts, during the last decade have approximated two billion 
dollars, the business man who does not include losses of this 
character in his expenses is much more of an optimist than 
he can well afford to be. 

Business as a whole is done on a credit basis ; and, due to 
the very nature of credit extension, every concern has some 
uncollectible accounts. 

Provision for such bad debts should be made each month, 
by crediting "Allowance for Doubtful Accounts" account in 
the General Ledger and charging "Bad Debts" expense with 
the estimated monthly loss due to uncollectible accounts. This 
estimate is based upon the experience of past years. 

As soon as an account is known to be irretrievably bad, it 
is written off against the "Allowance for Doubtful Accounts" 
account. 

This expense item is an Office and Administrative cost. 



UNCLASSIFIED 

This is not intended, and should not be used, as a dumping 
place for miscellaneous expenses. All expenses should be 
closely analyzed and charged to the various stibclassification* 
provided by "Chart of Expense Classifications." 

This means that practically all of the miscellaneous items 
making up the total expense can and should be charged to 
some particular expense classification. 

However, there will be, in most cases, some expenses, negli- 
gible in amount, for which no specific account has been pro- 
vided. Such items are to be charged to "Unclassified." 

This expense will generally affect all four departmental 
divisions of the business. 



VII. Classification of Expenses 73 

NON-OPERATING EXPENDITURES 

It should be borne in mind that the expenses incurred in 
the operation of a business should not be confused with any 
other expenditures. 

For this reason interest on borrowed money, or cash dis- 
counts to customers, are not considered as expenses which af- 
fect costs, since such disbursements represent charge against 
income. 

Conversely, interest on bank balances, purchase discounts, 
dividends from securities, and the like, should not be treated 
as income derived from the merchandising activities of the 
business, but as income from capital. 



CHAPTER VIII 

Departmental Distribution of 
Expenses 

HAVING DETERMINED the various constituents of ex- 
pense as a whole, our next step is to consider the correct ap- 
plication of such expense. The means whereby expense is 
applied to the various products handled will be fully treated 
in Chapter IX. In the meanwhile attention is directed to the 
proper bases for correctly distributing each and every expense 
to the" various departments of the business. 

DEPARTMENTALIZATION 

Each department of a concern is, in effect, a small business, 
separate and distinct, and should be so treated in the cost find- 
ing arrangement. 

The great secret of correct cost finding lies in departmentali- 
zation. Every step in the merchandising process must have 
its own clearly defined sphere. 

Each department has its own expense, has its own particu- 
lar functions to perform in the merchandising activities, and 
is, to all intents and purposes, a separate and distinct little 
business. 

Departmentalizing is merely localizing expenses to certain 
divisions of the business, the various departments being so 
planned that they represent some distinct division of the whole. 
which is so different in its operations from other divisions that 
it merits separate treatment. 

LABOR 

The time of foremen will be charged directly to the particu- 
lar department in which the individual foreman is engaged. 
In other words, if the entire time of one foreman is given to 



VIII. Departmental Distribution of Expenses 75 

the Yard and Warehouse department, the total amount of his 
remuneration will be charged to that department; if, however, 
both the Yard and Warehouse, and Delivery departments are 
supervised by a single foreman, his time must be distributed 
to both departments on a basis of the amount of supervision 
given to each. 

The labor of yardmen is, of course, charged directly to the 
Yard and Warehouse departments; while the time of teamsters 
and truckdrivers goes to Delivery department. 

In case a workman spends his time in both the Yard and 
Warehouse, and Delivery departments, his wages should be 
distributed to both departments on a basis of the amount of 
time spent in each. 

MAINTENANCE 

Repairs to buildings will be distributed to Yard and Ware- 
house, Delivery, and Office and Administrative departments on 
a basis of floor space occupied by each. 

Repairs to equipment will be distributed to the same three 
departments on a basis of the value of the equipment in each, 
provided it is not considered advisable to make these charges 
direct on a basis of the time spent by the firm's workmen and 
the invoices from outside concerns for work of this character. 

Expenses incurred in connection with repairs to wagon and 
trucks, feed, shoeing, veterinary, gasoline and oil, truck li- 
censes and tires will all be charged directly to Delivery de- 
partment on a basis of purchase invoices rendered by the ven- 
dors. If repairs to wagons and trucks are made by the firm's 
workmen, the time spent on the particular work should be used 
as the basis for charging the labor, while the materials used 
should be cha'rged on a basis of purchase invoices. 

Supplies and expense may be distributed to the Yard and 
Warehouse, and Delivery departments on a basis of purchase 
invoices, where such supplies art purchased in limited quanti- 
ties, the "nature" of the supplies themselves being relied upon 
to give an approximately correct distribution to departments. 



7(> 1III . Departmental Distribution of Expenses 

In case a stock of supplies is kept on hand, it is considered 
advisable to carry supplies as a deferred charge, (see Chart of 
Accounts in Chapter III) crediting "Supplies" account in the 
General Ledger and charging expense with the amount of such 
supplies used each month. 

INSURANCE 

Insurance on buildings is distributed to the Yard and Ware- 
house, and Delivery departments on a basis of the floor space 
occupied by each, that on equipment on a basis of the value 
of equipment in each; while insurance on stock of merchandise 
is charged to Yard and Warehouse department only. 

Inasmuch as the cost of liability and compensation insurance 
is a direct charge against the labor used in the business, — the 
premium paid being based upon a certain rate per $100.00 of 
payroll — it is readily seen that it is not difficult to charge this 
directly to the department to which it applies, on a basis of 
the value of the labor used in each department. 

TAXES 

The distribution of taxes on real estate is made to the Yard 
and Warehouse, and Delivery departments on a basis of floor 
space utilized by each, and personal property taxes on equip- 
ment should go to these departments on a basis of the value 
of equipment in each. Personal property taxes on merchandise 
on hand is charged entirely to Yard and Warehouse depart- 
ment. Corporate taxes arc a direct charge to Office and Ad- 
ministrative department. 

DEPRECIATION 

Building depreciation is a charge to the Yard and Ware- 
house, and Delivery departments on a basis of the floor space 
utilized by each; and equipment depreciation on a basis of the 
value of equipment in each. 

Depreciation of horses, wagons, and trucks is a direct charge 
to Delivery department only. 



J' III. Departmental Distribution of Expenses 



RENT 

If the building or buildings in which the business is located 
is rented or leased, instead of being owned, the accrued rental 
is, of course, a proper charge to expense. 

This should be distributed to the four departments on a basis 
of floor space occupied. 

TEAM AND TRUCK HIRE 

This expense is chargeable to Delivery department on a 
basis of invoices rendered by public truckmen. 

By keeping such expense separate in a classification by itself, 
two purposes are served ; i. e., the cost of such outside team- 
ing is ascertained ; and the expenses in connection with the 
firm's own teaming operations can then be used to obtain 
definite information as to the cost, say, per yard of material, 
for gasoline and oil, tires, repairs to trucks and wagons, feed, 
shoeing, veterinary services, and the like. 

EXECUTIVE SALARIES 

In most cases, this is both a Selling and an Office and Ad 
ministrative expense, due to the circumstance that the proprie- 
tor, manager or other executive divides his attention between 
these two departments of the business activity. In some cases, 
also, the proprietor or manager might give considerable time to 
the operating end of the business, but it is not considered ad- 
visable or necessary that any part of this expense be distributed 
to Yard and Warehouse, and Delivery departments. 

Distribution to the Selling, and Office and Administrative 
departments will be made on a basis of the amount of time 
given to each. 

OFFICE SALARIES 

All salaries paid to bookkeepers, clerks, stenographers, or 
other office employees are charged directly to Office and Ad- 
ministrative department. 



78 VIII. Departmental Distribution of Expenses 



SALESMEN'S SALARIES 

This expense is a direct charge to Selling department. 

In case any employe divides his time between office work 
and selling, it is considered advisable to prorate his salary to 
both Selling, and Office and Administrative departments on a 
basis of the time given to each. This will apply, as well, to 
office workers, some parts of whose time is given to selling. 

COMMISSIONS 

Selling department is charged with the whole of this expense, 
as it accrues, and not as it is paid. For further description as 
to the manner in which commissions are accrued, see sub- 
classification "Commissions" in Chapter VII. 

AUTO EXPENSE 

The "Chart of Expense Classifications" shows this expense 
as a charge against Selling department, upon the assumption 
that flie firm's automobiles will be used, at least largely, in 
selling activities. 

If, however, they are used to any large extent, by execu- 
tives or others, for any purpose except to make sales, the 
expense in connection with their upkeep should be divided be- 
tween Selling, and Office and Administrative departments on a 
basis of the use by each. 

ADVERTISING 

This expense is incurred for the sole purpose of acquainting 
the buying public with the firm's merchandise, and is, therefore 
directly chargeable to the Selling department. 

TRAVELING EXPENSE 

Expenses of this character are distributed to both the Selling, 
and Office and Administrative departments on the following 
basis : If incurred by salesmen or executives in selling activi- 
ties, they are to be charged to Selling department: if incurred 



VIII. Departmental Distribution of Expenses 79 



in any other activity of the business, Office and Administrative 
department should be charged. 

POSTAGE 

This is an Office and Administrative department charge. 
TELEPHONE AND TELEGRAPH 

Office and Administrative department should be charged with 
the total of this expense. 

WATER, FUEL AND LIGHT 

The total of these charges should be made to Office and Ad- 
ministrative department. 

CREDIT AND COLLECTIONS 

This expense is properly chargeable only to Office and Ad- 
ministrative department. 

DUES AND SUBSCRIPTIONS 

This is a charge against Office and Administrative depart- 
ment. 

LEGAL AND PROFESSIONAL SERVICES 

Expenses in connection with legal and professional services 
are a direct charge against Office and Administrative depart- 
ment. 

BAD DEBTS 

Office and Administrative department will be charged with the 
total of this expense. 

UNCLASSIFIED 

Any expenses incurred in the operation of the business, for 
which a specific classification has not been provided, will be 
treated as unclassified, and distributed to the four departments 
of the business by an analysis, to determine to what particular 



80 1III. Departmental Distribution of Expenses 

department they apply. In this case the nature of the expenses 
themselves will serve to give a clear idea as to where and for 
what purpose they were used. 

INSTRUCTIONS REGARDING "TIME" BASIS 

It will be observed that various references have been made 
to "time" as the basis for distributing certain expenses to de- 
partments. 

In such cases, it will always be advisable to obtain the 
actual time spent, if it is possible to do so ; however, if this is 
not practicable, an estimate of the amount of time spent in each 
department may be used instead. 



CHAPTER IX 

Applying Expenses to Sales 

THREE GROUPS OF DELIVERIES 

THE various commodities dealt in by building supply deal- 
ers are delivered to customers in such manner that they nat- 
urally fall into three distinct and separate groups. 
These are: 
1— Yard Sales: I 

Material received, unloaded and stored in warehouse 
or yard, and delivered to customers therefrom. 
2 — Indirect Shipments: 

Material received in carlots and delivered to customers 
from car (without being handled thru warehouse). 
3 — Direct Shipments: 

Carlot shipments direct from manufacturer to cus- 
tomers. 

ALL SALES NOT CHARGEABLE WITH SAME EXPENSE 

Each of these three broad classifications of sales should 
bear its proper proportion of the entire operating expenses 
of the business. *p- * 

It is evident that the cost of merchandising builders' sup- 
plies will vary as does the method of deliver}-. The fact 
that carlots delivered direct from cars to customers cost 
less to handle than smaller quantities delivered from yard 
or warehouse is unquestionable, due to the circumstance 
that no Yard or Warehouse expense is chargeable against 
them. Likewise direct shipments from manufacturer to 
consumer, which require no physical handling by the dealer, 
cannot properly be charged with either Yard and Warehouse 
or delivery expense. 

Our next step, therefore, is to determine proper bases 



82 IX. Applying Expenses to Sales 

for applying the total expenses of each of the four depart- 
ments of the business to the three general divisions of sales. 

YARD AND WAREHOUSE EXPENSES 

Since all the expense of the Yard and Warehouse depart- 
ment are incurred in connection with receiving, unloading 
and storing material, the total of these expenses is properly 
chargeable only to such sales as are represented by de- 
liveries from the yard and warehouse. 

A "Tonnage Record of Material Sold" (Fig. 14) will be 
maintained, which will yield valuable and necessary informa- 
tion in connection with the various classifications of sales 
falling within the three general divisions. The names of 
the specific materials delivered from the yard or warehouse 
will be written in the blank spaces at the top of the various 
columns, the weight as shown by delivery tickets being 
entered in the particular column to which it applies. Thus, 
at the end of each month, the totals of the various columns 
will furnish the aggregate tonnage of each and every kind 
of commodity sold and delivered from the yard or ware- 
house during the same month. 

DELIVERY EXPENSES 

Yard Sales and Indirect Shipments are both chargeable 
with delivery expenses. A "Tonnage Record of Material 
Sold" will be maintained for Indirect Shipments, similar to 
that for Yard Sales, and the total expense of the Delivery 
department will be prorated to both Yard Sales and Indirect 
Shipments in the ratio that the tonnage of each bears to 
the total tonnage. 

SELLING EXPENSES 

It is recognized that any basis which may be selected 
for application of selling expenses must be more or less 
arbitrary. 



IX. Applying Expenses to Sales 80 

However, it is logical to assume that, generally speaking, 
it will require practically the same effort to consummate 
the sale of a small lot of material, as it will the sale of a 
large lot. In other words, the expense incurred in obtain- 
ing orders is uniformly the same for all orders, regardless 
cf the quantity or value of the material which they represent. 

This being accepted, it is evident that the selling cost per 
$1 of sales will be greater on material sold in small quanti- 
ties than on material sold in carlots. From this it is 
naturally to be concluded that a distribution based on value 
of sales would not be equitable; but that, on the other hand, 
the number of orders provides the more nearly correct 
basis. 

Hence, this expense will be distributed on the basis of the 
number of orders handled for Yard Sales, Indirect Ship- 
ments and Direct Shipments. An order is understood to 
represent an individual shipment. Where an original order 
is in part back ordered, or shipped in installments, each 
shipment is considered as an individual order for this pur- 
pose. 

The information for this distribution will be obtained from 
a count made of the invoices issued in connection with Yard 
Sales, Indirect Shipments and Direct Shipments. 

OFFICE AND ADMINISTRATIVE EXPENSES 

This expense is not confined to any particular activity, but 
applies as a whole. It is the general supervision or general 
management expense of the business, and is usually regu- 
lated by and is consistent with the size of the business, which, 
in turn, is indicated by the volume of business done or of sales 
made. 

Because of this, the total office and administrative ex- 
pense should be distributed on a basis of sales value. In 
other words, the total of this expense will be applied to the 



IX. Applying Expenses to Sales 



three divisions of sales in the ratio that the value of the 
sales of each bears to the total value of all sales. 

The information for this distribution will be obtained 
from the sales analysis. 

ILLUSTRATION OF EXPENSE APPLICATION 

In order to illustrate the application of the expenses of 
the four general departments of the business to the three 
general divisions of sales, a typical Statement of Expense Dis- 
tribution is presented on the opposite page. 

Having worked up Statement of Expense Distribution, we 
are now in a position to compile a Profit and Loss Statement 
by means of which the profit existing in the three divisions 
of sales is determined. 

ASCERTAINING PROFIT OR LOSS FOR SPECIFIC COM- 
MODITIES 

It is, of course, possible to analyze sales further than is 
shown by Profit and Loss Statement (page 86); as, for 
instance, to determine the sale of each commodity or of 
several classes of commodities. And if a Sales Analysis 
(Form 3, Fig. 7, in Chapter II) is kept for each of the three 
general divisions of sales, it becomes a simple matter to deter- 
mine the profit or loss in each particular sales classification. 

This will be accomplished by showing sales and cost of 
sales for each separate classification, as Brick, Cement, Lime, 
etc., for each of the three general divisions; that is, Yard 
Sales, Indirect Shipment and Direct Shipments. The gross 
profit will then be brought down for each, following which 
expense will be applied to the particular classification, in 
order to determine the net profit existing in each commodity. 

Expenses will be applied to the particular sales classifica- 
tion, under this method, by using the per cent, of expense 
to net sales worked out on the "Statement of Expense Dis- 
tribution." The net sales value of each commodity sold 



IX. Applying Expenses to Sales 



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IX. Applying Expenses to Sales 8? 

during an accounting period being multiplied by the expense 
percentage will furnish the amount of expense to be applied 
to the individual sales classification. 

In illustration of this, let it be assumed that the sales, 
say, Brick, for a. certain month were as follows, within the 
three general divisions: 

Yard Sales $20,000.00 

Indirect Shipments ........ 10,000.00 

Direct Shipments .... 30,000.00 

Let us further assume that the cost of brick sold were: 

Yard Sales $12,000.00 

Indirect Shipments 7,000.00 

Direct Shipments 25,200.00 

The Profit and Loss Statement would then be made up 
in the following manner, for these particular sales: 

Brick Sales— Yard $20,000.00 

LESS: Cost of Brick Sold 12,000.00 

GROSS PROFIT $ 8,000.00 

Expenses: 37.615 Per Cent, of Sales 7,523.00 

NET PROFIT $ 477.00 

Brick Sales— Indirect $10,000.00 

LESS: Cost of Brick Sold 7,000.00 

GROSS PROFIT 3,000.00 

Expenses: 19.294 Per Cent, of Sales.. 1,929.40 

NET PROFIT $1,070.60 

Brick Sales— Direct , ,-,-, $30,000.00 

LESS: Cost of Brick Sold,,,. 25,200.00 

GROSS PROFIT ....... '...:. 4,800.00 

Expenses: 10.048 Per Cent, of Sales 3,014.40 , 

NET PROFIT $1,785.60 



88 IX. Applying Expenses to Sales 



ACCOUNTING FOR CEMENT SACKS 

In the treatment of transactions arising from trading in 
cloth cement sacks, two inventory accounts should be set 
up, one representing the value of sacks on hand filled with 
cement, and the other the value of empty sacks on hand. 

The "Filled Sacks" inventory account will be charged 
with the value of sacks represented in purchases of cement 
from manufacturers, and credited with the value of sacks 
when cement is sold to customers. The balance remaining 
in this account will represent the value of sacks on hand 
containing cement. 

The "Empty Sacks" inventory account will be charged 
with the amount allowed to customers for empty sacks re- 
turned by them, and will be credited with the amount al- 
lowed by manufacturers for sacks returned by the dealer. 

The balance remaining in this account represents, 
theoretically, the value of empty sacks on hand; but, in 
practice, will be subject to an adjustment to bring it into 
agreement with a physical inventory taken of empty sacks 
on hand at the close of each accounting period. Dis- 
crepancies are certain to enter into this account, due to mis- 
count, tearing in handling, rejection by manufacturers, and 
tne like, resulting in a loss to the dealer. This loss is 
usually negligible in amount, and should be absorbed as a 
sundry yard expense. 

VARIATIONS IN ACCOUNTING PLAN 

The accounting plan presented thruout this series of 
articles deals with the accounting procedure of, and is ap- 
plicable only to, an enterprise engaged solely in the sale and 
distribution of builders' supplies. 

To adopt it to a concern engaged in other activities would 
require considerable amplification, in the way of introduc- 
ing additional accounts, by means of which the accounting 
detail of the other department might be adequately handled. 



IX. Applying Expenses to Sales 



Some firms engaged in merchandising builders' supplies 
handle, in addition, coal, lumber and mill work, while others 
operate a planing mill, or mill work factory. 

ACCOUNTING FOR COAL MERCHANDISING 

In the merchandising of coal, the accounting procedure 
is not foreign to what has been presented herein. If coal 
only is handled, in addition to builders' supplies, no change 
is necessary in the methods outlined, inasmuch as the ton- 
nage of coal may be readily obtained, and the various ex- 
penses will be distributed and applied to this commodity 
in the same manner as to builders' supplies. 

ACCOUNTING FOR LUMBER MERCHANDISING 

Altho the tonnage of lumber and mill work handled may 
be computed, it is so foreign to the custom of the lumber 
trade to deal with lumber on any other basis than per thou- 
sand square feet, that it is doubtful if the suggestion to deter- 
mine the tonnage of lumber and mill work would receive 
the serious consideration of the dealer who handles these 
commodities. 

In view of this, a separate department should be set up 
on the "Chart of Expense Classifications" for "Lumber and 
Mill Work," to which all expenses applicable thereto would 
be charged. 

The labor used in this department should be ascertained 
from time reports. 

All other expenses would be distributed to it equitably 
on the various bases outlined in preceding chapters. 

MILLWORK FACTORY ACCOUNTING 

Those concerns which operate a mill work factory will 
find it necessary to establish cost finding methods par- 
ticularly adapted to the planing mill industry, if it is de- 
sired to maintain a complete accounting plan. 



90 IX. Applying Expenses to Sales 

It is unwise to assume that it is practical to systematize 
one part of a business only, since all departments are so 
closely related as to render valueless any attempt to draw 
a distinct line between them for accounting purposes. 



CHAPTER X 

Accounting for Purchases 

AS ONE of the first requisites of merchandising, material 
must be purchased. Having been purchased, and shipment made 
by the vendor or seller, it must be received and stored by the 
dealer, to be subsequently sold. 

It is with the purchasing of, receiving, storing and accounting 
for material that this chapter deals. 

REQUEST FOR PURCHASES 

Preliminary to the actual purchasing there must be shown 
a need for merchandise. The information that certain com- 
modities are needed is conveyed by means of what is termed a 
"purchase requisition" (figure 15). 

After this request for purchase has been made out, signed 
by the individual originating it, and approved by the proper 
authority, a purchase order is prepared, in accordance with the 
request, and the order is placed. 

PURCHASE ORDER 

The purchase order (figures 16 and 17) is usually a form 
comprising four (or more) copies, upon which the necessary 
details with respect to the specific order are entered. It should 
always bear a serial number, and a request that such order 
number appear on the seller's invoice. 

This is necessary, in order to facilitate the settling of any 
questions that may arise as to the authority for a purchase, or 
as to the quality or quantity of goods purchased, since it. is 
an easy matter to look up the duplicate of the purchase .order, 
and thereby determine all the facts in relation thereto. 

The printed matter on the different copies varies considerably, 
as will noted from the two forms illustrated. Thus the orig- 
inal copy is a direct order for materials, carrying- on it's face 



92 X. Accounting for Purchases 

in addition to the name of the seller, certain information as to 
whom, where, when and how shipment is to be made. Besides 
this, the form bears a detachable acknowledgment of order, 
which, upon signature and return by the shipper, constitutes 
an acceptance. In any case, unless the shipper takes exception 
to the conditions specified, puts the purchaser upon notice of 
such exception, he is presumed to have accepted the order 
under the conditions showing on the purchase order, and can be 
held responsible for furnishing the goods accordingly. 

SAFEGUARDING MATERIAL 

The second copy is an exact duplicate of the original except 
in so far as the space occupied by the acknowledgment of order 
is concerned. This is the office or file copy, and should never 
be removed from this file, unless an "out card" is substituted. 

The third copy is the Receiving .Clerk's. This copy is usu- 
ally made up with a "short" carbon so arranged that, in the 
body of the order, only the articles and description will show, 
the balance of the order being left blank, so that the Receiving 
Clerk may be forced to weigh, count, measure, or otherwise de- 
termine the quantity of goods received, instead of relying upon 
the purchase order to give him the information. 

By this means a satisfactory check is maintained on the ac- 
curacy of the Receiving Clerk's work, since his report of the 
actual amount of goods received is checked with the duplicate- 
purchase order in the file, and any shortages arc quickly dis- 
covered and acted upon. 

Material is the equivalent of money. Money is expended in 
its purchase. It should, therefore be guarded in much the 
same way as money. At the very outset — at the time of the 
physical receipt of the material — the actual quantity received 
should be determined. 

The fourth copy is similar to the second copy, and is filed 
away in an "unfilled order file", until the goods are received 
when it is attached to the invoice. 

Where this is impracticable, because of a number of invoices 



X. Accounting for Purchases 93 



being rendered by the seller, all of which are covered by one 
purchase order, it is left in the "unfilled order file", until all 
invoices have been received and checked against it, when it is 
taken out and permanently filed, or otherwise disposed of. 

THE STORES LEDGER 

Material having been ordered and- received, the next step 
is to enter each item in the "Stores Record" or perpetual in- 
ventory record (figure 18). 

It should be borne in mind that the requirements of a per- 
petual inventory of material are that a separate account be 
kept with each kind or class of material, and not alone with 
each class, but with each grade of each class. 

For example, if a quantity of brick were received, it w T ould 
not suffice to have one account only in the Stores Record cov- 
ering the entire quantity, unless the brick should happen to 
be all of the same grade or class. It should be understood that 
the Stores Record is a record of all material coming into the 
yard or warehouse, and all material going out in the way of 
sales or otherwise, subdivided as to kind, grade, style, or size 
of material carried in stock. 

STORES RECORD ACCOUNTING PROCEDURE 

Each invoice covering goods purchased goes to the clerk 
who keeps the Stores Record, after the goods are received. 
From these invoices the clerk makes a debit entry in the col- 
umns headed "Received," to the proper account, showing date, 
order number, quantity, price, and amount. 

Each sales invoice is also passed to the Stores Record Clerk, 
from which he makes a credit entry to the proper account, 
in the columns headed "Disbursed", at which time he enters 
on the sales invoices the cost of the goods sold. These in- 
voices are then extended at the cost price, and entered in the 
"Cost Value" column of the particular class of commodity 



X. Accounting for Purchases 



in the Sales Analysis, as illustrated in form 3, figure 7, Chap- 
ter II. 

WHAT IS COST PRICE? 

The term "cost price" comprehends the following : 
1 — Cost as shown by price on invoice. 
2 — Freight inward. 

Material is purchased in one of two ways; either f. o. b. 
point of shipment, or f. o. b. point of destination. In case 
material is purchased f. o. b. point of shipment, it is charged 
to the proper merchandise account at the invoice price, the 
freight inward on such material being charged to the same 
account. This applies to the bookkeeping procedure thru 
the Accounts Payable and Distributing Record, and not to the 
Stores Record procedure. 

In handling such invoices thru the Stores Record, the 
freight should be added to the face value of the invoice, and 
a new unit price determined, before entry is made therein. 

AVERAGE UNIT PRICE 

At the end of the month the columns headed "Balances" are 
used. The total quantity disbursed is subtracted from the total 
quantity received, to arrive at the balance quantity. The total 
value disbursed is, likewise, deducted from the total value 
received, to determine the balance value. The balance quan- 
tity divided into the balance value will give the average 
price to be used for costing sales invoices for the subsequent 
month, and this should be determined at the end of each 
month. 

ACCOUNTING CONTROL OVER MERCHANDISE 

It will be seen from this that the accounting procedure 
here is nowise different from that employed in the handling 
of any other group of subsidiary accounts, such as, for in- 
stance, accounts receivable. We have in the Stores Record, a 



X. Accounting for Purchases 95 

subsidiary record that is handled in the same manner as an 
Accounts Receivable Ledger, both being controlled by an ac- 
count in the General Ledger, and each explaining in detail its 
respective controlling account. 

The Stores Record, or perpetual inventory, exercises a con- 
trol over merchandise that is similar to the control exercised 
over cash by the Cash Receipts Record, and the Cash Dis- 
bursements Record. It prevents the waste and theft of ma- 
terial, as the Cash Book prevents the theft of money. 

When it is considered that material is simply another name for 
money; that it is, in effect, — actually and practically — a better 
representation of wealth than money, the reason for prevent- 
ing waste and theft becomes plain. 

By means of the Stores Record an accounting is had with 
all merchandise. It is charged with all material received, 
and credited with all material sold or otherwise disposed of. 
The difference between the quantity received and the quantity 
disposed of must be accounted for by goods still on hand. It 
is evident, therefore, that, by the use of this record, a means 
is at hand by which the amount of any particular kind of mer- 
chandise on hand may be ascertained at any time, both as to 
quantity and value. 

VOUCHING PURCHASE INVOICES 

When purchase invoices are received, they should be certi- 
fied as to receipt of goods, as to quantity received, as to price, 
as to extensions, and as to distribution. 

The means employed to show that the goods have been 
received, are correct as to quantity shown on invoice, as to 
price, and as to money value, and are properly classified as to 
the particular merchandise, expense or other account to be 
charged, is shown by figure 19. This is a rubber stamp 
placed on the invoice ; and the proper notations being made 
therein, is received by the bookkeeper as authority for accept- 
ing the invoice for entry and payment. 



96 X. Accounting for Pur chases 

VARIATIONS IN MATERIAL COST 

It is evident that all material is liable to fluctuation in price. 
Material ordered today, may be purchased at a certain price, 
but the pi .ce of that material purchased a month or two 
months hence will be either higher or lower. Speaking broad- 
ly, there is no such thing as stability in the price to be paid 
for material over a range of several months. 

It happens, therefore, that the unit price of each lot of 
each class of material carried in stock will, ordinarily, vary 
considerably from the unit price of each and every other lot. 
Hence, the question naturally arises as to what price will be 
used in costing sales invoices. 

TWO METHODS OF PRICING 

There are in general use two methods of pricing, known as : 

1 — The "oldest price first method." 
2 — The "average cost method." 

The first method is founded on the assumption that what- 
ever material is sold will be drawn from the oldest lot first, 
so that the price paid for the oldest lot is the price placed 
on the sales invoices until that lot is exhausted, when the 
price paid for the next oldest lot is applied, and so on 
thru the various lots. 

The second method begins by establishing the fact that 
each lot of each class of material is alike in all practical re- 
spects to each and every other lot, and by disregarding the 
fluctuation in the price paid for the particular lot as affecting 
the cost of the whole. In other words, when material has been 
purchased at different prices, the various prices are consoli- 
dated into one average unit price. It is this average unit price 
that is used in costing sales. 

Tt may be said that, while both the above methods are in 



Accounting for Purchases 



general use, the second method gives, by far, the most accur- 
ate results ; since in some cases the cost of sales would fluctu- 
ate considerably from month to month, if material were priced 
by the first method, thereby destroying the comparative value 
of the cost of sales over a range of months. This second 
method is illustrated in the description of the use of the col- 
umns headed "Balances" in the Stores Record. 



CHAPTER XI 

Accounting for Sales 

IN THE SALE of his merchandise, the building supply 
dealer should consider it absolutely necessary to keep a credit 
record of his customers. These are cards arranged for visible 
indexes, and should be filed alphabetically in a stand or holder. 
as illustrated by figure 20. This is the first source of informa- 
tion for the credit man. 

CREDIT RECORDS (FIGURE 21) 

Each card contains the salient facts regarding each cus- 
tomer, and bears a credit limit beyond which sales shou'd 
not be made. This is not a fixed line, however, beyond which 
there is no advance, but rather a guide for the employes of 
the credit department, in order that further sales may be sub- 
mitted to the credit manager for approval when a customer's 
purchases have reached the limits set. Thus the account is 
always brought to the attention of the executive when it has 
reached a certain stage. 

The second source of credit information lies in the accounts 
in the Customer's Ledger. In a business of any size it is, of 
course, impossible for the credit man to keep in touch with 
all accounts receiveable. Nor is it necessary that he do this. 
His attention is required, however, in those accounts which 
are overdue, and these can readily and easily be watched by 
looking over the statements sent out by the bookkeeper, and 
giving his attention to those which contain overdue items. 

SHIPPING ORDERS (FIGURE 22) 

When an order is received it is first checked with the 
credit file to determine if further credit is justified. This 
having been satisfactorily ascertained, all the records per- 



XI. Accounting for Sales 99 

taining to the individual order should be made out ai one 
writing. 

In the usual routine of business three copies of an order 
are required. These are: 

1 — Office copy, or permanent record, which is fixed tem- 
porarily in numerical order. 

2 — Shipping copy, a notice to the yard or warehouse to 
make shipment, and which is to be returned to the 
office showing actual quantities delivered. 

3 — Shipping cooy, which is to be left with customer when 
goods are delivered. 

The actual accounting work in connection with a sales or- 
der begins after the goods have been shipped. The shipping 
copy is then turned over to the billing clerk, who checks it, 
as to number and customer's name, with the office copy, at 
which time the office copy is detached from the temporary file. 
This temporary file, therefore, fulfills all the requirements of a 
register of undelivered orders, by means of which a satisfactory 
check is maintained over the delivery department. 

The shipping copy is then priced, extended, checked as to 
prices and extensions, and used as the medium from which to 
make out the customer's invoice. 

SALES INVOICES (FIGURE 23) 

The invoice is made out in three copies: 

1 — Sales invoice, to be sent to the customer. 

2 — Office cop}-, or permanent record for the purpose of 
charging the customers and determining the sales. 

3 — Office copy, for the purpose of determining cost of 
sales and crediting merchandise inventories. 

The first and second copies are made out completely show- 
ing sales prices, extensions and totals. The third copy, 
by means of a short carbon arrangement, shows all the 
information except prices and extensions. This copy is 



100 XT. Accounting for Sales 



used for costing sales. The merchandise items showing 
thereon are priced at the cost of the goods, and extensions 
made at these prices. 

SALES ACCOUNTING ROUTINE 

The first copy of the sales invoice is, as previously stated, 
sent to the customer, while the second and third copies are 
used by the bookkeeper for entry in the Sales Analysis. 

Each entry is made in two ways. First, the invoice, ex- 
tended at selling prices, is entered in the Sales Analysis 
(form 3, figure 7, Chapter 11), the total face value of the 
invoice being charged to "Accounts Receivable" account in the 
column headed "Accounts Receivable, Dr.", and a distribution 
made to particular classes of merchandise by entry in the 
various columns headed "Sales Value." 

Secondly, the invoice, extended at cost prices, is entered 
in the various columns headed "Cost Value", on the same 
line in the Sales Analysis as the original sales invoice bear- 
ing the like number. Thus, if the Sales Analysis form is 
drawn so as to provide a "Sales Value" and "Cost Value" 
column for each kind or class of merchandise dealt in, the 
sales as well as the cost of sales are shown by the totals of 
these two columns for each classification of merchandise. 

Whenever several different lines of goods are dealt in, 
it is desirable to have the sales, as well as the purchases, 
kept separate for each line. There will, in all probability. 
be a large variation in the rates of gross profit on the differ- 
ent lines. Hence, by a separation of this kind, the proprie- 
tor or manager would have information furnished as to the 
results of the business done in each class of merchandise, 
which would be distinctly valuable to him. 

POSTING TO CUSTOMERS' LEDGER 

The sales invoice may also be used as the medium from 
which to post to individual Customers' Ledger accounts. 



XI. Accounting for Sales 101 

In this case the bookkeeper posts to each customer's ac- 
count direct from the invoice file. It is especially desirable, 
if not absolutely essential, that this method be followed 
when bookkeeping machines are used. On the other hand, 
if postings to the Customers' Ledger are made by hand, it 
may be deemed preferable to use the Sales Analysis as the 
posting^medium. 

It should be borne in mind that a trial balance of the 
Customers' Ledger should be taken off each month, in or- 
der that it may be seen that the aggregate total of all the 
debit balances of the Customers' Ledger equal the debit bal- 
ance found in the "Accounts Receivable" controlling ac- 
count in the General Ledger. If these are not in agree- 
ment, the error or errors should be located and adjusted 
immediately. 

CREDIT MEMORANDA (FIGURE 24) 

It is general practice to issue a credit memorandum to 
customers returning goods, which may be applied in pay- 
ment of purchases, or cashed upon presentation to the 
cashier. 

In the handling of these memoranda it is necessary to 
bear in mind that they are to be entered in two values, as 
in the case of sales. In fact, they are handled in the same 
manner as sales, except that the entry in the Sales Analysis 
is reversed. 1 ] 

A separate Sales Analysis sheet should be set aside at 
the beginning of the month for this purpose, and headed 
"Credit Memoranda," which should not be used for enter- 
ing sales invoices. The entry of credit memoranda on this 
sheet should be made in the' same manner as that described 
for sales invoices, bearing in mind that the distribution at 
both selling and cost prices should be made to the various 
classifications of merchandise. 



102 XI. Accounting for Sales 



POSTING CREDIT MEMORANDA 

At the end of the month, the total of the "Accounts Re- 
ceivable" column of the Sales Analysis sheets used for the 
entry of credit memoranda, is posted to the credit of the 
''Accounts Receivable" account in the General Ledger, while 
the totals of the "Sales Value" columns under each mer- 
chandise classification arc posted to the debit of the par- 
ticular sales "Returns" account to which they apply, and 
the totals of the "Cost Value" columns are posted to the 
credit of such "Cost of Sales" accounts as they affect, and to the 
debit of the various "Inventory" accounts. 

It is understood that the individual customer's account 
would be credited with these credit memoranda when post- 
ing to the Customers' Ledger. 

Allowances to customers are also made out on credit 
memoranda. These are handled in the same manner as 
returns, except that there would be no cost value, and that 
particular sales "Allowances" accounts are debited, instead 
of "Returns" accounts as in the case of goods returned by 
customers. Postings would be made to the credit of in- 
dividual customer's accounts as in the case of returns. 



CHAPTER XII 

Accounting for Coal and Lumber 
Departments 

Building Supply News System of Bookkeeping and Cost Find- 
ing was originally designed to serve the purpose of dealers in 
masons' supplies alone, as contradistinguished from building 
supplies in their entirety, which, of course, includes such items 
as Lumber, M'illwork. Sash and Doors, Shingles, Wood Lath, 
and the like. 

DIFFERENCES IN UNIT OF MEASURE 

Since a large number of building supply dealers carry both 
masons' supplies in the way of brick, cement, lime, gravel, sand, 
etc., and lumber and lumber products, it is considered advisable 
and desirable to widen the scope of the methods originally de- 
veloped to include a means whereby all dealers, whether in 
masons' supplies alone or in the wider range of all kinds of 
building supplies, together with coal, can profit by the same sys- 
tem. 

All the methods developed in the original plan are applicable 
in the main essentials to any dealer's business, irrespective of 
the range of materials handled. 

The unit which more nearly met all requirements, as the one 
basis for expense application in the masons' supplies field, was 
found to be the pound or ton. On the other hand, the unit of 
measure hitherto applied to lumber is that of the 1,000 square 
feet ; to shingles and lath, bundles ; to posts and poles, pieces ; 
to moldings and trim, the linear foot, and so on. 

Therefore, where lumber and its products are handled in ad- 
dition to masons' materials, it will be found necessary to pur- 
sue one of two methods of expense application. These two 
methods are : 



104 XII. Accounting for Coal and Lumber Departm'ts 

(1) To set up two main departments of the business; i. e., 
"Masons' Materials" and "Lumber," with separate and distinct 
sub-departments of "Warehouse" and Delivery" for each of 
these two main divisions, and to distribute all labor and ex- 
penses accurately to both, or 

(2) To reduce all materials handled to the common unit of 
the pound or ton. 

TIME REPORTS UNNECESSARY 

In the first case, it would be necessary to keep the time of 
yardmen and deliverymen for each of these two main depart- 
ments ; in other words, where the same man or men were used 
indiscriminately for both lumber and masons' materials, it 
would become necessary to establish some system of time re- 
ports, whereby the time spent in each department might be 
ascertained. 

If this were the only way in which accurate and dependable 
results could be accomplished, it would be rightly considered 
necessary under the circumstances, even tho the effect of such 
a method would be to increase considerably, not alone the cleri- 
cal work in the office, but also to augment the cost of handling 
and delivery to the exact extent that the time spent on the part 
of workmen in keeping their time could not be utilized in pro- 
ductive work. 

Time reports are a necessary and indispensable part of the 
cost finding procedure of almost all manufacturing establish- 
ments; but, in the retailing of builders' supplies, they would 
fulfill no purpose consistent with simplicity, nor produce any re- 
sults not yielded by a less complicated plan. 

FINDING THE BEST POSSIBLE METHOD 

Consequently, it is to the second method that we must look 
for that degree of simplicity compatible with ease and facility 
in handling the cost finding detail. Theoretically costs may be 



XII. Accounting for Coal and Lumber Departm'ts 105 

kept with absolute accuracy. Practically the best costs are but 
a more or less accurate approximation. 

It is possible, certainly, to keep time reports, and to charge 
every cent paid to yardmen, truckmen and teamsters, to either 
the masons' materials or the lumber divisions of the business, 
but the clerical detail required to insure accuracy would seldom 
if ever be justified. 

Expenses in the retail building material business must be 
assigned by a more or less arbitrary system ; and, while some 
methods may be more minutely accurate than others, absolute 
perfection is never attainable. Accuracy in clerical work, as 
in mechanical work, can only be obtained as a result of slow, 
close and expensive application, and it is unwise, extravagant 
and wasteful to insist upon and expect greater exactness of 
detail than is justified by the ultimate results sought. 

Please observe that inaccurate and careless methods of de- 
termining costs are neither recommended nor condoned. When 
costs are secured they should be as accurate as it is feasible 
to make them, without spending in their preparation a sum 
unwarranted by the results they are expected to produce. But 
there can be no possible object in measuring the time of 
workmen between two divisions of the same business, when a 
similar end can be attained by simpler methods. 

DETERMINING ONE UNIT OF MEASURE 

In the second method we have a means, at once simple and 
accurate, of applying all expenses to all classes of sales, by 
the simple expedient of finally reducing all goods handled to a 
common unit of weight. 

Every building supply dealer recognizes the pound or ton as 
the proper unit in connection with masons' materials, and when 
consideration is given to the matter, it will be conceded that 
there is no serious drawback to reducing lumber and its prod- 
ucts to the same unit. For all practical purposes, lumber, 
shingles, lath, posts and poles, sash and doors, moldings and 



106 XII. Accounting for Coal and Lumber Departm'ts 

what not, bear weight classifications upon which the shipper 
bases his price f. o. b. point of destination. By the applica- 
tion of such standard weights, a means is at hand by which 
to accomplish the reduction of lumber and lumber products 
to the common unit of pounds or tons. Where a going in- 
ventory is maintained, each specific size and grade of lumber, as 
well as all other materials, would have its own separate sheets 
in the Stores Record, so that, at the end of the month, the 
total footage of each kind of lumber sold could very readily 
be reduced to its equivalent weight. 

Hence, the methods of expense distribution and application 
orignally worked out in Chapters VI, VII, VIII and IX, are 
applicable to the handling of all kinds of building materials. 

REVISION OF PURCHASE AND SALES FORMS 

For those concerns who deal in lumber and lumber products 
in addition to mason's materials, it becomes necessary to re-design 
two of the original forms; i. e., "Accounts Payable and Dis- 
tribution Record" and "Sales Analysis." 

The Accounts Payable and Distribution Record (figures 25 
and 25A) is presented in its revised form, in order that the 
lumber dealer may set up a different range of inventory classi- 
fications than those required by such concerns as handle masons' 
materials only. The four departmental groups of expenses ; 
i. e., "Yard," "Delivery," "Selling" and "Administrative and 
General Office" shown on this form arc identical with those 
shown on the original Accounts Payable and Distribution Record 
appearing in Chapter II, "Book of Accounts." For complete 
description of Accounts Payable procedure please refer to the 
chapter above mentioned. 

In the Sales Analysis (figures 26, 26A and 2tiB) a consider- 
able departure from the record as originally presented has 
been made. Thus, the original record provided columns show- 
ing weight, sales value and cost value, for such sales classifica- 
tions as Brick, Cement, Lime, etc., whereas the new record 



XII. Accounting for Coaland Lumber Departm'ts 107 

provides a number of blank columns with sub-headings of 
Quantity, Sales Value and Cost Value under each. 

The two master sheets of the Sales Analysis, represented by 
figures 26 and 26A provide eight columns for specific sales 
classifications, together with a miscellaneous column, intended 
for the purpose of entering such items of sales for which it is 
not deemed advisable to use a special column. 

The slip sheet represented by figure 26B provides an ad- 
ditional eight columns (four columns on each side of the sheet) 
which makes the entire form exceptionally flexible where a 
large number of sales classifications are required. If necessary 
two slip sheets may be inserted between each two master sheets, 
thus providing columns for an aggregate of twenty-four specific 
sales classifications. 

SUGGESTED SALES CLASSIFICATION 

It will be noted that the headings of the various triple col- 
umns, with subheadings of Quantity, Sales Value and Cost 
Value under each, have been left blank. By so doing, each in- 
dividual dealer can use his own discretion in choosing a range 
of sales classifications. A list of such classifications will be 
made up by the dealer and numbered, as illustrated by the fol- 
lowing items, it being necessary then only to number the vari- 
ous triple columns in the Sales i\nalysis to correspond with the 
list, in order to designate any and all sales classifications. 

1. — Common Dimension 

2. — Common 1-in. Boards 

3.— No. 2 Sheathing 1x4 

4.— "B" Ceiling J /4x4 

5.— "B" Partition ^4x4 

6. — "B" Flooring 1x4 

7.— "B and Better" Drop Siding 1x6 

8. — No. 1 Com. Drop Siding 1x6 

9. — Clear Redwood Beveled Siding ^4x5 
10.— No. 1 Y. P. Shiplap 1x10 



108 XII. Accounting for Coal and Lumber Departm'ts 

11.— No. 2 Y. P. Shiplap 1x10 
12.— Y. P. Clear Finish 
13. — Cypress Finish 
14. — Shingles 
15.— Lath 
16. — Moldings 
17. — Sash and Doors 
18.— Brick 
19. — Cement 
20.— Lime 

21. — Sand and Gravel 
22.— Paint 
23.— Coal 
24. — Hardware 

For a full and complete description of Sales Analysis pro- 
cedure, see Chapter II. 



CHAPTER XIII 

What Is the Real Value of a 
Cost Accounting System? 

The real value of a cost accounting system is given by Mr. 
Hafner in answer to this query: 

What is the real purpose of a good cost system, and what it its 
value? 

The real purpose of any adequate cost system is to analyze 
all the elements that make up daily business transactions. 

The careful analysis of any problem is the first step towards 
its solution. This word "analysis" has a very definite signifi- 
cance. It means nothing more or less than the separation of 
a thing, a proposition, a problem into its component parts, the 
orderly classification of those parts or elements, and their thoro 
examination. 

The analysis of all the vital facts of a business furnished 
by a good cost system is the preparation for future construc- 
tion work; it gives us the material with which to build. From 
the various facts presented for our consideration we can pick 
the ones we wish to use. We can see just what their relation 
has been to all other facts — all other elements — in the past, and 
thus be able to avoid combinations in the future which will fail 
to give us the desired results. Without analysis of the prob- 
lem which is before us, our approach to it is blind, and we 
can only follow empirical rules which are almost as likely 
to lead us astray as to conduct us to the desired end. Cost 
accounting, therefore, is the basis — the foundation — on which 
our business structure is built, and only as we do consistently 
analyze all the facts of our affairs, can we hope to erect a 
lasting edifice. 



]]() XIII. Real Value of a Cost System 

THE FOUR WAYS OF HANDLING BUSINESS 

Any problem may be handled by one or more of the follow- 
ing methods : 

1. By disregarding it. 

2. By decison based on intuitive judgment. 

3. By trial and error. 

4. By knowledge based on facts. 

The superiority of each of these methods over the preceding 
one is obvious. Exact knowledge of costs, based on the facts 
and figures of your business is the one best bet in securing and 
maintaining control over your affairs. And this sort of knowl- 
edge can come only from and thru a cost system that analyzes, 
step by step, all the facts about every transaction, so that you 
can proceed sanely, sure-footedly — with confidence. 

The chief asset of any executive is his judgment, developed 
thru training and experience. Now, experience is not simply 
a living thru and observing a series of events ; but it is the 
assimilation and appropriation of the essential facts which un- 
derlie and determine that set of happenings. And since the ac- 
curacy of the business man's judgment depends upon the as- 
similation of the facts of his experience, it is evident that some 
means must be had by which to gather and analyze the facts. 

Facts and figures which will insure safety as well as prog- 
ress must be gathered, stated, approved and used. Leaks must 
be stopped; waste eliminated; just prices determined; correct 
methods of financing devised; federal tax statements prepared; 
effective methods of managerial control put into operation. A 
good cost system will accomplish all this, and more. For it is. 
in the hands of an intelligent man. a guaranty of profits. 

THE REASONS WHY MEN FAIL 

Did you ever think how worry is eliminated when you can 
proceed on sure knowledge? Why does a man worry? Apply 
the question to any phase of life. Because he is in the dark ; 
because he has nothing to guide him ; because he guesses. 



XIII. Ural Value of a Cost Syste 



Every time you guess, you gamble. Every time you gamble, 
you worry. Every time you worry, you lose time — you lose 
efficiency. It takes a big man to guess and succeed. It is haz- 
ardous, and few, if any, ever make it pay in the long run. 

A large number of business men fail every year. During 
the year 1920 the loss to creditors thru business failures amount- 
ed to over $200,000,000. These, classified by cause, stood as 
follows : 

Per cent. 

1. Incompetence and inexperience...'. 43. S 

2. Lack of capital 30.3 

:{. Fraud 7.0 

4. Neglect _ 1.7 

5. Extravagance 1.1 

6. Speculation 0.7 

7. Failures of others 1.7 

8. Unwise credits 1.3 

9. Competition 1.1 

10. Specific conditions 11.3 

100.0 

From this it appears that 84.6 per cent, of all business fail- 
ures for the year 1920 were directly attributable to a lack of 
knowledge of the facts of business. The causes shown by the 
first six items of the above list, which make up the total of 84.6 
per cent, go hand in hand with the too prevalent indispositioto 
on the part of business men to look squarely and resolutely at 
the real state of their affairs. 

PAPER "PROFITS" BOOST NO BANK BALANCE 

Instead of taking account of stock every month, or carefully 
inventorying his goods by some perpetual stockkeeping method, 
and providing for depreciation and bad debts — keeping in close 
touch, month by month, with his actual financial position and 
operating condition — the hopeful fool masquerading as a busi- 
ness man shuts his eyes and refuses to see. If- he stops to take 
inventory, and to find out what his balance sheet shows, he 



J 12 XIII. Real Value of a Cost Accounting 

steadfastly refuses to classify his accounts receivable, figures 
them all good, and values his merchandise at more than it will 
yield. The result is that his profits, like those of the merchant 
who made ten thousand dollars over night by the simple expedi- 
ent of marking up his goods 10 per cent., are always on paper 
— never in cash in the bank. 

Not long ago, Frank W. Vanderlip, a leading figure in the 
banking world, stated that the business men of America were 
"economic illiterates." Whether this judgment is affirmed or 
denied, it must be apparent, to the most casual observer, that 
most of the difficulties in business arc due to lack of knowledge 
— of markets, of materials, of expenses, of costs and profits. 
Lack of business information is the largest single cause of 
business incompetence or failure. 

Recognition of this fact has been, with many concerns, the 
beginning of wisdom. The result has been a two-fold move- 
ment. The business man has turned to the expert accountant 
and systematizer, or else he has tried to secure, thru his trade 
taper, the means of keeping informed as to his affairs. 

THE GREAT DISCOVERY— FAILURE IS PREVENTABLE 

The immediate effects of this movement, so far as the Build- 
ing Supply Industry is concerned, was shown by the develop- 
ment last year, thru the columns of Building Supply News, of 
an adequate and comprehensive accounting and cost finding 
plan for building supply dealers. 

All the forms and binders for a complete and secure installa- 
tion of this system are now being carried in stock by Tallman, 
Robbins & Co., 314 W. Superior St., Chicago. The individual 
retail dealer has thus a means of securing, at a nominal cost, 
the means whereby he may know precisely how he stands from 
month to month. 

Everywhere the wise business man is recognizing that failure 
is preventable. This is the cause of the present wide-spread 
interest in good management. Never before, in commercial 



XIII. Real J' alac of a Cost Accounting 113 

and industrial history, have business men been so eager to se- 
cure reliable information concerning their business affairs. 

For it is coming to be realized that, in business as in life, 
every man is the architect of his own fortune. Where there 
is a will in commercial matters there is a way. Business enter- 
prises are just what proprietors and managers willfully make 
them. Human beings, not chance, are responsible for all in- 
dustrial successes and failures. He who builds on sound in- 
formation, data and statistics, builds on a secure foundation. 
He who is an "economic illiterate" is scheduled for the scrap 
heap. 

The value of a good cost system, therefore, lies in the fidelity 
with which it presents the facts and figures regarding all the 
essential affairs of a business, so that the proprietor or man- 
ager may be guided in his decisions and judgments by the light 
of sure knoivledge. 



CHAPTER XIV 

Why is a Perpetual Inventory 
Necessary ? 

That a perpetual inventory is necessary is revealed in Mr 
Hafner's reply to the question: 

We notice that your new system of bookkeeping and cost finding 
makes it necessary to keep a perpetual or going inventory. Will you 
please tell us why you consider this necessary, and the advantage 
of it? 

THE MAJORITY OF RETAILERS seem slow to compre- 
hend the fact that even tho percentage of profit on a certain 
article be but 10 per cent, if it is earned often enough, say ,10 
times in a year, the annual turnover on money, or rate of profit 
on investment, will be 100 per cent. Too many business men 
overlook the fact that their cost of doing business, of say 25 
per cent, annually, cannot correctly be used to demand a 25 per 
cent, margin of profit on cadi item, because it is the percentage 
of profit on one sale and not on the year's investment. The vital 
point of comparison is how much profit can you make a dollar 
earn selling a given article. An article like Uneeda Biscuit, for 
instance, turns over 52 times a year. A dollar invested in this 
goods will earn the percentage of margin 52 times. Any dealer 
can get rich earning a 5 per cent, margin of profit on one article, 
if he sells it enough times; while, on the other hand, he may 
bankrupt himself on an article offering 100 per cent, profit if he 
rarely makes a sale. 

FREQUENCY OF TURNOVER BASIS OF PROFIT 

Quantity selling is the greatest modern profit policy. The profit 
on one barrel of cement, or on 1,000 brick is not much, but when 
this profit is multiplied by 1,000 or 5,000 or 10,000, the profit on 
the volume becomes considerable. In your business, I should 



XI J'. Why a Perpetual Inventory 115 

say that, generally speaking, you ought to depend upon multipli- 
cation of profit by frequent turnovers, rather than upon a wide 
margin of profit in each sale. That it is possible to do this in 
a way distinctly advantageous to you is, I think, evidenced by 
such outstanding successes as the Wm. Wrigley Co., manufac- 
turers of chewing gum. 

To accomplish the above task, we evidently must have a plan, 
an aim, and the mechanism whereby the aim may be attained 
by following the plan. Yet in putting such methods into effect, 
these three elements become so closely interrelated that a super- 
ficial observer may fall into a trap and accept mechanism for 
the plan, and its workings for an aim. Obviously, great con- 
fusion will arise in such a case when incidental and auxiliary 
are regarded as basic and essential. Such a "system" is bound 
to degenerate into tiresome and useless red-tape. Thus analyses, 
records and the like, while invaluable as means for the discovery 
of truth and of the best way of accomplishing certain results, 
are useless if not patiently, constantly and consistently studied, 
and carried out with a clear understanding of the purpose they 
are ultimately to serve. 

SUCCESSFUL MECHANISM TO SECURE FACTS AND 
FIGURES 

With this word of warning against what is too often the rea- 
son for the failure of adequate methods, I will outline, briefly, 
the mechanism that should prove successful in securing the facts 
and figures of business. This mechanism is, of course, set up for 
the purpose of, first, securing results, and second, observing 
results ; and this process of securing results for the sake of 
systematic presentation should be further subdivided into three 
distinct steps; namely, 

1 — Securing the necessary knowledge. 

2 — Making the knowledge available. 

3 — Utilizing the available knowledge. 



XII'. Why a Perpetual Inventory 



Very well, this being understood, what you need is a means 
of mechanism by which to accomplish the following : 

1 — Study of Merchandise Turnover, consisting of : Average 
turnover in each and every line of merchandise ; analysis of prin- 
ciples of turnover; methods used to increase it; policies of other 
dealers in regard to turnover ; turnover comparisons with other 
dealers. 

2 — Investigation of costs of doing business, which should com- 
prise : Cost of doing business by lines of merchandise; study of 
cost factors and tendencies ; comparison of costs with other 
dealers. 

STUDY INVENTORY FIGURES 

Inventory figures in any business are a worth while study, not 
only from the investment angle, but from that of purchases 
and sales ; which is to say, turnover. Comparisons of purchases, 
sales and inventory periodically will bring out very interesting 
and vital facts in relation to your business, and help to main- 
tain correct ratios. Records that show how much merchandise 
you have on hand, and when to buy, will enable you to keep your 
stock up to date, to watch the movement of the various articles 
carried, as well as to reduce capital tied up in inventories. 

Records of this character enable the manager to watch his 
course. Statements and reports which show the average profit 
by lines and the average turnover by lines enable you to keep in 
the closest touch with the results being obtained. 

PLAN RECORDS TO SHOW MONTHLY COMPARISON 

Therefore, your records must be so planned as to show monthly 
comparative statements of sales, cost of sales, expenses and net 
profits. Unless the figures get to you in this form it is difficult 
to see how the outlay matches up with the amount of business 
done. There are but 24 hours in a day. If an idea strikes the 
average executive, and he has within arms reach the means of 
verifying its value, he settles the matter at once. But if means 
of verification are not at hand ; if they require to lie sought out 



XIV. Why a Perpetual Inventory 117 



and "dug" for, he will hesitate ; and as a rule he will side-track 
the matter in favor of other interests clamoring for attention. 

A man gets into a rut of expense, and needlessly spends large 
sums because he does not look for a different way; therefore, 
anything that will help him to think, will reduce expense. Any- 
thing that will keep expense items continually before him, will 
help him control this part of his business. Expenses eat up a 
business, unless controlled and checked. Money slips away easily 
into a thousand channels that never cease flowing. The demands 
on the cash till are incessant. Unless there is vigilance, the ex- 
pense outgo will exceed the income, and presently the drawer 
will be empty. 

HOW TO CONTROL EXPENSE 

Expense is best controlled by centralizing its supervision. 
Subject all its ramifications to some system that reduces it to 
this periodical scrutiny of your desk. Have them come to you 
worked up in the form of percentages. In keeping the various 
items of expense at their proper ratio, percentage statistics play 
an important part. Expenses, as a rule, are governed by fixed 
or progressive percentages. When there are abrupt variations 
from this rule, they are inevitably shown up conspicuously, gra- 
phically, on the percentage tables. 

The advantage of such a record is manifest. All these ex- 
pense items bear a mutual — a natural — relationship to the chief 
classification under which they are grouped — Sales. For example, 
once you have determined approximately the percentage office 
expense ought to bear to sales, you have the key to the subse- 
quent controlling of this item. The ratio may have to be in- 
creased gradually because of increased costs, but if you do in- 
crease it you do so intelligently. You know exactly why. You 
do not waste brain power wondering why your selling expense is 
so big, or where you ought to cut. The percentage tables show 
you just what department is beyond its normal ratio. 

All the above information, and a great deal more is furnished 
by the Building Supply News Cost Finding System. 



CHAPTER XV 

How Will Business Be Done 
In the Coming Years? 

How business must be done in the next deeade is clearly 
set forth in what Mr. Hafner says to the query put here: 

I HAVE been very much interested in reading your Mr. Hafner's 
article, "Finding the Lowest Cost of Doing Business," appearing in 
the "Cost Question Box" department of Building Supply News. It 
occurs to me to ask what is your thought as to how business will 
have to be done in the coming years? 

This is a big" question — too big, in fact, to be covered in its 
entirety in the space at our disposal. But we should like to 
cover, at this time, one particular phase of the changed busi- 
ness situation, which it behooves dealers everywhere to under- 
stand and seriously think about. 

We have prepared and present herewith a chart, showing 
how wholesale commodity prices have varied during the eleven 
decades from 1910 to 1920. The chart is constructed so as to 
show the prices of 1913 and 1914 as being equal to 100. and 
those of other years as being proportionately greater or less, 
and is based upon figures compiled by Dr. R. G. Hurl in, Statis- 
tician of the Russell Sage Foundation. 

The most significant fact revealed by this diagram, is that 
each of the two previous great price increases has been fol- 
lowed by a thirty year period of irregularly falling prices, and 
a twenty year period of generally rising prices. 

In view of this, it is important for building supply dealers 
to consider whether or not we are facing a long term of fall- 
ing prices, and if so, what this means for business. 

TREND OF PRICES WILL BE DOWNWARD 

There is every evidence that the general trend of prices will 



A A. Business in Coining Years 1 ] <) 



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This Chart Shows How Wholesale Commodity Prices Have 
Varied During the Eleven Decades from 1810 to 1920. It is Con- 
structed So As to Show the Prices of 1913 and 1914 As Being 
Equal to 100, and Those of Other Years as Being Proportionately 
Greater or Less. The Chart is Based Upon Figures Compiled 
by Dr. R. G. Hurlin, Statistician of the Russell Sage Foundation, 



be irregularly downward for a period of years to come, just 
as it was after the two earlier great increases. One reason 
why this may be expected is to be found in the very fact that 
prices have been and are high. A second reason lies in the 
enormous losses of lives and property during the war, with 
the accompanying disorganization of the world's producing 
power. A third reason is evident in the depreciated currencies 
of the world, which the stronger nations will endeavor to make 
more valuable by every means in their power. 

For all these reasons it seems more than probable that we are 
in for a long period of falling prices. 



120 XV. Business in Coming Years 

CONDITIONS WHICH RESULT 

In any such period, any regular payment of a fixed sum, such 
as the annual installment on a mortgage for instance, is harder 
to make each year than it was the year before. The rent is 
harder to pay, and the taxes are more difficult to meet. The 
farmer who has to pay $200 a year on a mortgage can pay 
it with 100 bushels of wheat when the price is $2.00 a bushel. 
but it takes 200 bushels when the price drops to $1.00 a bushel. 

The building supply dealer finds that the value of his material 
shrinks while being held for sale, and that he must sell at less 
than he expected, or take a smaller profit than he had intended. 
The rent and the taxes and the wages and the depreciation and 
all the other expenses of doing business are in reality paid for 
in units of the various commodities sold, and each year it takes 
more and more of these commodities to pay for them. 

On the other hand, in a long period of rising prices all these 
conditions are reversed. The annual payment is each year easier 
to make ; the rent and the taxes are easier to pay. The dealer 
buys his material, and the longer he keeps it the more it is 
worth. He makes not only the profit he expected to make, but 
something in addition. 

Now, it is in this sort of commercial world that America's 
business men have lived and worked during the rising prices 
of the 20 to 25 years preceding June, 1920. Optimism was 
the business religion. Ability to make big money easily and 
quickly was the god before whom business bent the knee. The 
man who had faith in the future, and nerve, and imagination, 
and was willing to take chances, was the one who received 
society's great rewards. 

RETURN TO POST-CIVIL WAR CAUTION AND 
THRIFT EVIDENT 

But stop and think! Our fathers lived in an entirely differ- 
ent business world — a business world such as all signs indicate 
wc are now entering. Most of them had their active careers 



XV. Business in Coming Years 121 

in the long thirty-year period of falling prices following the 
Civil War. Caution and thrift and careful attention to details 
were the essentials for success. 

And this, in our judgment, is the kind of business world we 
will live in during the next :25 years. It is going to be increas- 
ingly harder to make satis factor}- profit. Only the sharpest 
sagacity, the most far-reaching penetration, and the soundest 
judgment will now enable us to discriminate between what is 
profitable and what is ruinous. We will have to base con- 
clusions and judgments upon knowledge rather than upon 
'"hunches" and guesses. 

AN ADEQUATE COST SYSTEM YOUR CHART AND 
COMPASS 

And in the struggle for lower costs during the coming 25 
years, some sort of an adequate cost system must be the corner 
stone. In the mind of every sensibly ambitious and up-to-date 
building supply dealer, a cost system should strike the key- 
note. For it will prove a constant reminder of the actual facts 
of the business. It will point out the weak spots. It will dif- 
ferentiate the value of different methods. It will be a chart 
and a compass. 

Every supply yard demands a cost system presenting regu- 
larly the facts of the situation. It must present in a proved 
way the complete cost of doing business. It must tell the story 
of the use and waste of materials. It must illustrate the turn- 
over of stock. It must picture expenses, and their relation to 
sales. It must marshall facts about the profit or loss existing 
in each line of merchandise handled. It must be a gauge of 
business capacity. 

HOW TO SECURE A COMPOSITE PICTURE OF THE 
ENTIRE INDUSTRY 

But if. in addition to this, the individual dealer can study busi- 
ness conditions in the larger sense, and especially if he can 



XV. Business in Coming Years 



have some means of comparing his own business against a back- 
ground of a composite picture of the industry as a whole, he 
can bring this broad and general information to bear in work- 
ing out his particular problems. 

Almost the most important single item of knowledge that a 
business man can have is that which tells him just how he- 
stands in relation to business in general, and this is precisely 
the goal toward which Building Supply News is striving. It 
is our purpose to inaugurate a group and national system of re- 
tail building supply statistics currently gathered and promptly 
available to all dealers. 

The greatest value and the most important consequence 
of the adoption of the Building Supply News System of 
Bookkeeping and Cost Finding will result from the con- 
stantly increasing use and installation of the system by the 
individual dealers and dealer associaton groups. 



CHAPTER XVI 

How to Find the Actual Cost of 
Doing Business 

Mr. Hafner tells how to find the actual cost of doing busi- 
ness to a dealer who asks this: 

In line with your articles on office system, I wonder if it would 
be possible for you to take up the question of actual cost of doing 
business. 

My idea is this: To take a mason material business of average size, 
which would be one of yearly sales of $250,000.00 and outline what the 
capital of such business should be, stock on hand, equipment and 
property investment expenses, etc. 

This would suffice for means of comparison with any other business 
in a similar line; altho some possibly would be smaller, and others 
larger. 

There seems to be no method of telling whether a business is being 
conducted properly or not, inasmuch as the information in the proper 
form is practically impossible to get. 

This, of course, is a pretty big task, but at the same time it would 
have a real message for Mason Material Dealers. 

Here is a man who is thinking! A man who is thinking in 
terms of the future — who is "dipping into the future" as far as 
his eye can see. 

If business men generally would only receive into their minds 
the plain thought — which is very evidently firmly planted in the 
mind of the writer of the letter quoted above — that the way 
they are doing business now is not the way business will be done 
in five or ten or fifteen years, there would be less mistakes 
and fewer failures. 

MISTAKE OF STANDING STILL IN COST METHODS 

The difficulty with most business men is that they lay their 
plans on a basis of business as it is now. Whether consciously 
or not, the}- assume that things are to remain virtually the same 
as they now are— same kind of railroads, same methods of 



124 XVI. Actual Cost of Doing Business 

doing business, same kind of clothes, same kind of machinery, 
same methods in all the activities of life; thus dooming them- 
selves to a place in the great army of the camp followers of 
progress. They place themselves entirely at the mercy of the 
world of the present moment, forgetful of the fact that the 
world of the present moment isn't going to last very long. 

Very evidently the writer of the letter quoted at the outset, 
is projecting himself forward into the business activities of 
the future ; is trying to get ready for business as it will be 
done in the next few years : 

PLAN PRACTICAL IF TWO THINGS HAPPEN 

And the idea he has is entirely practicable, if — 

(1) Cooperation can be secured from a sufficient number of 
mason material dealers. 

(2) These cooperators will install uniform accounting meth- 
ods, so that similar data may be compiled on exactly the same 
lines. 

This is a matter that calls for absolute frankness. Business 
operations are essentially scientific in character. They are obe- 
dient to economic laws. These laws are susceptible to ascer- 
tainment and statement. It is practicable, with the proper means 
at our disposal, to obtain definite ideas of prevailing business 
conditions at any given moment, and to so set them forth by 
graphic presentation, or otherwise, that the individual material 
dealer may draw reasonable conclusions regarding the result of 
existing conditions, and so guide his conduct accordingly. 

SEVEN BENEFITS TO DEALERS FROM UNIFORM 
SYSTEM 

One of the things that might easily be done, with great profit to 
building supply dealers, individually and collectively, is to work 
up and report fundamental statistics of the industry, such as the 
following: 

1, Sales by commodities. 

2. Cost of sales by commodities. 

3% Orders received bv commodities. 



XJ'T. Actual Cost of Doing Business 125 

4. Yard and warehouse expense per ton per commodity. 

5. Delivery expense per ton per commodity. 

6. Selling expense per order. 

7. Administrative expense per dollar of sale. etc. etc. 

The broad knowledge that results from having always avail- 
able assembled figures from many sources, and covering a wide 
area, is coming to be recognized as an essential factor in secur- 
ing and maintaining control of the individual business. A com- 
posite chart often gives assurance where it is vitally needed. 
Suppose your business is falling off, in spite of everything you 
can do to prevent it. You imagine that the fault is yours, 
and you are tempted to cut prices radically, or to take some 
other drastic action, when you look at your composite report of 
business conditions thruout the industry, and to your surprise 
you find that the total business of your group, or of the entire 
industry, is not only falling off as your business is falling off, 
but that it is falling off at a faster rate than your own. Your 
mind is at rest. The blame for the slump is not yours. The 
conditions that caused it are beyond your control. Thus, the 
conditions that might easily have resulted in blind, cut throat 
competition, point the way to enlightened competition ; or, as it 
might better be described, friendly co-operation. 

On the other hand, if an examination of the facts shows the 
individual dealer that his business is falling off more rapidly 
than the total, he is awakened from a false security by the 
wholesome incentive to keep up with the crowd. In this wax- 
trade consciousness and industrial solidarity are promoted. 

WHY SATISFACTORY COMPARISONS ARE NOT YET 
POSSIBLE 

But our correspondent does not state what his idea is as to 
how this information might be secured. We have now in various 
forms a type of so-called business reports in the United States, 
which are little better than worthless in the judgment of many 
competent authorities. They are reports made up of opinions, 
impressions, conjectures — obtained often from many sources and 



126* XJ'I. Actual Cost of Doing Business 

fused into a common whole on the theory that error cancels 
error. It would be a waste of time and effort, as well as an 
untold source of error to work up an ideal set of hypothetical 
figures as a guide to current business activities. 

The type of business report needed should, above all things, 
be based on an actual ascertainment of facts. And these facts 
should be current facts. The business world is not attracted by 
ancient history, but is concerned only with current events. There- 
fore, to be productive of worthwhile results, some means should 
be perfected whereby actual current monthly statistics may be 
obtained from as many sources as practicable within the build- 
ing supply industry. 

And the rub is just there. It is a hard thing to overcome 
the reluctance of building supply dealers to supply data of the 
kind necessary for comprehensive reports of this character, for 
two reasons. The first is, that co-operation in reporting informa- 
tion entails upon the individual members of the group the keep- 
ing of a uniform plan of bookkeeping and cost rinding. By uni- 
formity is meant broadly, a common classification of asset 
and liability items in the general ledger, a common classification 
of expense, and a common way of distributing such expenses, to 
departments of the business and applying them to sales. 

COST DATA THAT WILL BE OF PRIME SERVICE 

The second reason is that dealers have been apparently reluct- 
ant to supply data, either because they were fearful of the result 
of the information which they might thus furnish to competitors, 
or because they did not believe that the trouble and inconveni- 
ence involved in the service was warranted. 

It was for the purpose of overcoming the first difficulty that 
Building Supply News had a system of bookkeeping and cost 
finding developed for the use of building supply dealers. This 
system comprises the most advanced thought, both as to the 
methods to be used and their application to the needs of the 
industry. It will furnish the dealer monthly, with all the vital 
facts and figures of his business, and do it in a way at once 



XVI. Actual Cost of Doing Business 127 

simple and comprehensive. And it is being rapidly installed in 
an increasingly large number of retail building supply, lumber 
and coal concerns. 

But until a sufficient number of installations have been made 
to insure a fairly wide range of reports, it is not considered 
advisable to attempt to begin to gather information, because of 
the consequent loss of accuracy. A broad study of current busi- 
ness conditions is the only safe guide to the individual business. 
The gathering of these data is entirely feasible, and only awaits 
the cooperation of a reasonable number of representative dealers. 

The utility of such business reports must be evident to any- 
one who is thinking about what might be done to improve the 
retail building supply industry, both individually and collectively, 
since they would be a very sensitive indicator of existing trade 
conditions, and reflect immediately the trend of the industry. 
Charts could be worked up which would show the combined fig- 
ures along different lines, of all the reporting members. As a 
part of these the charted results of the individual members would 
be shown, so that each dealer could compare graphically his own 
business with that of the total. 

DIVULGING OF CONFIDENTIAL DATA NOT AT ALL 
NECESSARY 

The fact that summarized information is available for all, 
without individual names being divulged, makes it possible for 
each dealer to set up standards of performance by which the 
efficiency of his own plant may be judged. The effect of this 
on the trade in general would be salutary in the extreme. From 
such analyses the individual dealer would be able to draw in- 
ferences regarding the direction in which business was moving, 
and so be able to shape his business activity and policy on a 
basis of a composite picture of comparable facts. 

Xo, it is not a big task, once the necessary co-operation is 
secured. 

We agree with you that such reports, not only should, but 
would have a real message for Mason Material Dealers. 



CHAPTER XVII 



Bookk ee Ptng Machines — When 
and When Not? 



In reply to the dealer's question following, Mr. Hafncr 
tells when a bookkeeping machine should be used: 

For some time I have had a bookkeeping machine installed in my 
business, and have been assured that this is the most modern and 
up-to-date system of bookkeeping extant. 

On the other hand, I have noticed continual references in your 
columns to Building Supply News System of Bookkeeping and Cost 
Finding System as being the most modern and up-to-date. 

I confess I am confused as to just what is meant by the term 
"system," and wish you would give me some light on the subject. 

EVERYBODY TALKING SYSTEM 

Everybody is talking about system, and writing about it, 
and more or less interested in it; everybody wants some sort 
of system. But few who talk about it know what they are 
talking about; thus business men are led in all variable ways, 
while there is only ONE way in which they can get what 
they ought to have, for true "system" is always and will 
always be one. Thus, in spite of all our talk about it, the 
very meaning of the word "system" remains confused and 
undecided. 

FIRST DESCRIPTION; THEN EXPLANATION 

Whatever changes may be made in the customs of busi- 
ness; whatever new machines may be invented; whatever 
ingenious devices may be designed to give ease and facility 
for handling bookkeeping and clerical detail, true system in 
bookkeeping and cost finding remains and will remain un- 
changed. For, please observe, a good system always consists 



XIII. Bookkeeping Machines 



of two things: description and explanation. First, gather- 
ing and describing the facts of the business; secondly, the 
interpretation of those facts for the use of the business man. 
A good system must always unite the two; it cannot exist 
for a moment but in their unity; it consists of the two as 
essentially as water consists of oxygen and hydrogen, or 
marble of lime and carbonic acid. 

IT MUST GATHER AND PRESENT FACTS 

So then, you see, a system of bookkeeping and cost finding 
worthy of the name, must be so designed as lo gather es- 
sential and vital business facts, and present them in a clear- 
cut, definite, complete manner — all its effectiveness is rooted 
in the truth with which it accomplishes this. And this selec- 
tion, arrangement and presentation must have influence over 
everything that the system is concerned with— over forms, 
and reports and statements. Every fact should be presented 
in just that order, and with just that force, that will per- 
fectly connect it with all the other facts, and will illustrate 
the others as well as receive illustration from them. 

Now, how is this to be accomplished? Only by "design." 
And to design a system competently, it is necessary to know 
what results it is desired to secure (which means an ex- 
haustive study of the particular business or industry), and 
the best arrangement of forms and methods for securing 
them, and the surest way of effecting such arrangements 
(which means long years of experience in accounting work 
in many and varied lines of business); then only, so far as 
such arragements have been chosen, and such methods used, 
is the system well designed. 

A MACHINE IS NOT A SYSTEM 

See, then, that system is a set of principles, plans, meth- 
ods; and not forms — not devices — not machines. A book- 
keeping machine is not a system — it is a physical means to 
an end only. Forms, machines, devices are the mentis thru 



1.30 Xf'II. Bookkeeping Machines 

which principles and plans arc put into effect; — they are not 
a system any more than brick and mortar and steel girders 
are a building. So many tons of steel, so many yards of 
concrete, so many thousand brick are useless — utterly so — 
unless, in the first place, some architect has seen a complete 
building in his mind's eye, and has drawn a plan. 

It has been our experience that in the past too many build- 
ing supply dealers have looked upon a bookkeeping system as 
merely a means of accounting for purchases and sales — pur- 
chases at the price they pay for the materials, and sales at 
the price they receive for them. It never seemed to enter 
their heads that this sort of bookkeeping gave them but 
precious little information about their business. True, they 
knew how much they owed to others, and how much others 
owed to them, but the records stopped right there. No con- 
structive facts were forthcoming; no knowledge of costs, 
so that high cost points stuck out so they could be hit. 

HOW ONE DEALER WAS MISLED 

That point is hammered home in the letter from W. E. 
Cox, of the O. H. Keller Lumber Yard, published on page 
782 of Building Supply News, issue of May 23, 1922. Mr. 
Cox thought he was making a nice fat profit on mouldings, 
and found that he was not; he thought he was making a 
profit on finish, and found that he was not; he didn't know 
whether he was making a profit on coal, and found that 
"our coal business is actually standing us a very great loss, 
and we are no longer having to guess what this loss is." 

Mr. Cox got all this and other valuable information by 
properly analyzing the expenses of his business, and accu- 
rately applying such expenses to the sales of the various 
commodities dealt in. He no longer has to "think" and 
"guess," because he has the facts presented to him by 
Building Supply News Cost Finding System. Note this, and 
never let it escape you when thinking of "system;" Building 



XI' II. Bookkeeping Machines 131 



Supply News System presents facts, because it properly 
.nialyzes expenses and accurately applies such expenses to 
sales, month by month as the business goes along. 

DO YOU LIVE IN THE PAST OR THE PRESENT? 

This monthly analyzing and application of expenses, to- 
gether with a means of accurately determining the cost 
prices of materials sold, is the very heart of any worth-while 
system for building supply dealers. The trouble is that 
too man\' dealers pin their faith to last year's figures — on 
percentages based on what they have done and not on what 
they are now doing. They live in the past and not in the 
present. They are 'comparable to a mariner sailing a chart- 
less sea, without sextant or compass, standing on the stern 
of his ship, which he attempts to steer by the line of foam 
following in its wake. 

What every dealer needs is some means of ascertaining, 
monthly, just where and to what extent he is making a 
profit; that is to say, on what particular commodities and in 
what amounts. Xo forms, or machines or devices will ac-. 
complish this, in and of themselves. There must be a 
plan, into which all these things are fitted for a definite 
place. 

USE A MACHINE WHERE VOLUME DEMANDS ONE 

And it is just here that the bookkeeping machine comes 
in. It has a definite place, under certain conditions and 
circumstances. They are not economical in all cases. The 
fundamental condition underlying the use of bookkeeping 
machines is the volume of work to be taken care of by them. 
In those concerns where the total number of items to be 
posted do not average around 400 daily, it will be found that 
nothing is to be gained, in point of time or effort by the 
use of a bookkeeping machine. If the total number of daily 
items average less than 400, your bookkeeper can post by 
hand as easily — if not much more so — as b}- machine. You 



I: 12 XVII. Bookkeeping Machines 

see, bookkeeping machines are simply a means of handling 
bookkeeping detail — a system of bookkeeping, never. 

One other point. In those concerns where bookkeeping 
machines are now being used for posting to Customers' 
Ledger or Purchase Ledger, or for handling any other 
work for which they are suited, no change as to the man- 
ner in which this detail is handled is ordinarily contem- 
plated in the installation of Building Supply News System. 



CHAPTER XVIII 

How Should Credits Be Handled? 

A GREAT MANY business failures are directly traceable to 
overexpanded credit. Any dealer who does not place a volun- 
tary limit on the amount of credit for which he asks is, to say 
the least, running a very great business risk. The moment he 
expands his credit to the limit he leaves himself no margin of 
safety, and a sudden change in business conditions may place 
him in a serious situation. 

OVEREXPANSION OF CREDIT 

Commercial agencies usually call this condition a lack of 
capital. The fundamental cause, however, is not so much lack 
of capital, as it is doing too much business on credit. The 
business man. has been using all the borrowing capacity he 
possesses; and, instead of carrying on his affairs on the capital 
actually invested in the business, is doing it to a very consider- 
able extent on the money that others have loaned him. 

Prices will be rising. He will know in a general way that 
prices sometimes fall, but if prices keep on rising thru two or 
three years, the eventuality of a fall will seem remote. He will 
believe all the good news he hears and none of the bad. He 
prospers. He finds that he can pay his bills with something 
over. He views his business thru rose colored glasses. 

When he is short of money he borrows, or he borrows to 
take cash discounts. There is always an interval between the 
time when money is paid to him, and the time when he has to 
pay his bills. If he does not take cash discounts, he may have 
a period of 60 or 90 days during which he can use this money. 
By that time other money is in, and he can use that. He may 
not be making a profit, but he has a "float" of money, which 
does not really belong to him, but enables him to live and stay 
in business. 



134 XV11I. How Should Credits Be Handled 



THE LIMIT OF CREDIT 

If this "float" of money is large enough to pay the bills ahead 
as they fall due, he fails to distinguish between profits and money 
owed, and begins to extend his business or his scale of living 
on the money in hand. If he is not quite so crude as this, and 
keeps some sort of adequate bookkeeping records and an inven- 
tory, he may not spend so much, but he will likely take all 
his accounts receivable at their face value, and price his inven- 
tory at more than it is worth. 

There are two sides to this question of credit. The limit of 
credit is not the amount you can get — altho that is the more 
common limit. The limit should be determined by what you 
can use with safety ; and what you can use with safety is de- 
termined, in turn, not by your banker or the credit manager of 
the firms from whom you buy, but by you yourself. And the 
fixing of the amount of credit you can safely use, whether mer- 
cantile or bank, is not based on the number of orders on hand. 
or on ability to sell or on anything of the kind, but only on the 
amount of capital at your command. 

This does not mean that credit should not be sought ; or that 
all business should be done on the capital actually invested in 
the concern. It is the fact that few, if any, business establish- 
ments are so circumstanced, in respect to the necessary volume 
of available cash, as to be able to dispense with credit, that 
makes credit so indispensable a factor in commercial life. 
The limit of the volume of currency restricts such a possibil- 
ity and leaves the commercial public under the dominion of the 
credit system. Hence it is apparent what a boon credit repre- 
sents to business men and how its absence would dwarf all at- 
tempts at extended business enterprises. 

RELATION OF SALES VOLUME TO CREDIT 

Credit should be sought and used intelligently; but it should 
not be strained. Overexpanded credit not only brings disaster 



XVIII. How Should Credits Be Handled 135 

to individual business concerns but it also brings on business 
depression. After expansion has reached a certain point de- 
moralization takes place. For instance how often does a dealer 
ask himself the question: "How much can I afford to sell?" 

This might seem at first glance like foolish question number 
9869. The usual answer emphatically given will be : "All that 
[ can. How else can I go forward?" It may seem ridiculous 
to suggest that a dealer may have more business than is good 
for him. Yet it is a proved fact that a large portion of the 
present business and financial difficulty came thru failing to ask 
whether or not orders should be taken beyond a certain amount. 

This is unfortunately a subject to which almost no attention 
has been given. Business in general is thought to consist of 
buying and selling. Finance seems a consequence — an incidence. 
Very little, if any, thought has been given by the dealer to fix- 
ing the point at which to stop selling — when and where to say : 
"My capacity at the present time is taxed to the limit. I can 
take further orders subject only to my ability subsequently to 
fill them." 

Now, the ability to fill orders may be physical. In that case 
every dealer will know how to go about reforming his limits, 
by such extensions as may be necessary to expand them. But 
the wisdom of expansion is another matter, especially in boom 
times. More often, however, the limit to -sales is really finan- 
cial rather than physical. And this is irrespective of the credit 
that can be obtained. Every supply business has at any par- 
ticular moment a very definite financial limit which should be 
translated into the amount of business it can safely do. And 
that limit is not fixed at all by borrowing capacity. 

KEEPING YOUR CREDIT GOOD 

It is not a hard matter to keep your credit good. All that is 
necessary is to take a few precautions, and observe in general 
the principles of good business. The first requisite, of course, 



136 XVIII. How Should Credits Be Handled 

is to accept no more credit than the business will stand. Some- 
times it is possible to secure enough credit to ruin a business. 
Its present condition and future prospects may appear so 
good as to warrant securing all the credit possible under the 
circumstances. 

It requires courage to limit the growth and the temporary 
prosperity of a business by keeping down the credit accepted — 
extraordinary courage. It is very hard to refuse orders. It is 
difficult not to make extensions when there is in sight if not 
actually on the books, enough business to pay for the exten- 
sions. But the acid test of whether or not you should extend 
and borrow is not the amount of business that can be done, but 
the amount of money that can be spared. The mere fact that 
you have the money or can get it does not in the least mean that 
it should be spent. 

And the reason for this is that, in order to keep your credit 
good, you must meet all obligations promptly. Nothing has a 
more chilling effect on any business than failure to meet all 
indebtedness when due. Immediately additional time is requested 
in which to meet obligations, your credit rating begins to con- 
tract : and if, at the same time, your credit has been over- 
expanded the business is placed in a most difficult position. 
More than one concern has gone to the wall when faced with 
this combination. 

THE SAFETY VALVE OF CREDIT EXPANSION 

The principal difficulty in this matter of the proper use of 
credit is that very few supply dealers know very much about 
their financial position or operating condition during the course 
of the year. The most of you depend upon closing up your 
business once a year only, to find out what you have made or 
lost for the past twelve months; during all the balance of the 
year you have no means of determining what profit you are 
actually making, or what losses you are surely suffering. And, 



XI III. Hoic Should Credits Be Handled 187 

as has already been pointed out, so long as there is a "float" 
of money to take car*e of your current obligations, you do not 
distinguish between profits and money which may not really 
belong to you. 

It all gets down to this : It is not possible to use your credit 
properly — in the last analysis, it is not possible to do business 
properly — unless and until you have a means of knowing, cur- 
rently, month by month, as you go along, all the facts regarding 
costs and profits. This is the safety valve of credit expansion. 
Only by knowing whether you are making a profit is it pos- 
sible for you to determine whether your capital is increasing or 
decreasing. If you wait until the end of the year to find this 
out. you may have wiped out your capital entirely in the mean- 
while. 

Any business man whose accounting records will not show 
him first, what he has now ; second, what he had yesterday ; 
third, what he may expect to have tomorrow, is sailing in un- 
charted seas. 

And the rub is just there. If you cannot demonstrate— prove 
— that you can pay the money back when due, your accounting 
is not well done. 

If you had, at the end of each month, the information shown 
by Figs. 59 and 60 there would be no question as to your hav- 
ing all the facts necessary to set you right on this very impor- 
tant subject. 

And it's the easiest thing in the world to get these statements 
monthly. Building Supply News has recently published a system 
of bookkeeping and cost finding specially developed for supply 
dealers, which will furnish monthly statements of this character, 
and do it with no increase in the amount of bookkeeping labor, 
If you employ a bookkeeper, why not use him to the best ad- 
vantage? The bookkeeper is there, why not make him produc- 
tive ? 



138 XV III. How Should Credits Be Handled 



FIGURE 60 

STATEMENT OF PROFIT AND LOSS 

UNIVERSAL BUILDING SUPPLY CO. 

JANUARY 31st, 1922 

INDIRECT DIRECT 
YARD SHIP- SHIP- 
SALES MENTS MENTS TOTAL 
SALES 

Gross $60,000.00 $5,000.00 $15,000.00 $80,000.00 

LESS: Returns 1,000.00 1,500.00 2,500.00 



MOT SALES $59,000.00 $5,000.00 $13,500.00 $77,500.00 

COST OF SALES 44,250.00 4,000.00 11,475.00 59,725.00 

GROSS PROFIT $14,750.00 $1,000.00 $ 2,025.00 $17,775.00 

E'ER CENT OF GROSS 
PROFIT TO NET 
SALES 25% 20% 15% 22.935% 

EXPENSES: 

Yard and Warehouse $ 3,000.00 

Delivery 902.00 

Selling 4,948.45 

Administrative a n d 

General Office 3,667.98 



TOTAL EXPENSE .$12,518. 3S 
PER CENT OF EX- 
PENSE TO NET SALES 21.218% 
NET PROFIT IN 

MERCHANDISING .. 2,231.62 
PER CENT OF NET 
PROFIT TO NET 
SALES 3.782% 

OTHER INCOME: 

Interest on Bank Balances $ 88.00 

Discount on Purchases 201.00 







$ 3,000.00 


$ 198.00 
419.25 


1,100.00 


$ 1,132.30 


6.500.00 


167.13 


464.94 


4,300.00 


$ 784.38 


$ 1,597.24 


$14,900.00 


15.688% 


11.831% 


19.226% 


215.62 


427.76 


2,875.00 


4.312% 


3.169% 


3.709% 



$ 289.00 
TOTAL $3,164.00 

OTHER DEDUCTIONS: 

Interest on Borrowed Money $ 275.00 

Discount Allowed Customers 220.00 

Loss on Bad Accounts 100.00 

TOTAL $ 595.00 

ADDITION TO PROFIT AND LOSS— SURPLUS $2,569.00 



XVIII. How Should Credits Be Handled 139 



FIG. 69 

BALANCE SHEET 

UNIVERSAL BUILDING SUPPLY CO. 

JANUARY 31st, 1922 

ASSETS 

CURRENT CASH: 

On Hand $ 1,000.00 

On Deposit 29,000.00 $ 30.000.0 



ACCOUNTS RECEIVABLE: 

Customers— City ....$115,000.00 
Customers — 

Country 105,000.00 

Sundry Accounts... $.000.00 322S.000.00 



LESS: Allowance for Doubtful . 6,000.00 



NOTES RECEIVABLE % 32,000.00 

NOTES RECEIVABLE 
DISCOUNTED 6,000.00 



MERCHANDISE INVENTORIES: 

On Hand $ 82,000.00 

In Transit 10.000.00 



TOTAL CURRENT A SSETS $370,000.00 

OTHER ASSETS: 

Investments $ 14,000.00 

Loans to Employees 30,000.00 44,000.00 



PERMANENT ASSETS: 

Real Estate $ 14,000.00 

Buildings 120,000.00 

Machinerv and Equipment 13,200.00 

Motor Truck Equipment 8,800.00 

Teams and Wagons 4,400.00 

Furniture and Fixtures 2,200.00 $162,600.00 



LESS: Allowance for Depreciation 16,260.00 



DEFERRED ASSETS: 

Prepaid Advertising $ 2,000.00 

Prepaid Insurance 1,500.00 

Prepaid Interest 500.50 4,000.00 



$564,340.50 



LIABILITIES 
CURRENT ACCOUNTS PAYABLE: 

For Merchandise $145,000.00 

Sundry Accounts 5,000.00 $150,000.00 



140 XJ'lll. How Should Credits Be Handled 



NOTES PAYABLE: 

For Borrowed Money $ 15,000.00 



P^or Merchandise 



A< VEPTANCES PAYABLE: 
For Merchandise 15,000.00 

ACCRUED ACCOUNTS: 

Accrued Salaries and Wages.. .$ 7,000.00 

Accrued Commissions 9,000.00 

Accrued Interest 1,000.00 

Accrued Taxes 780.00 17,780.00 



TOTAL CURRENT LIABILITIES $202,780.00 

RESERVES: 

For Federal Taxes $ 2,000.00 

For Contingency 2,725.00 4,725.00 

CAPITAL STOCK: 
Preferred Stock— Authorized... .$100, 000. 00 
LESS: Preferred Stock 
Unissued 50,000.00 $ 50,000.00 



Common Stock— Authorized $100,000.00 

LESS: Common Stock 

Unissued 50,000.00 50,000.00 100,000.00 



PROFIT AND. LOSS— SURPLUS $254,266.50 

PROFIT AND LOSS- 
CURRENT MONTH OF JANUARY 2.569.00 



CHAPTER XIX 

How Should Collections Be 
Handled? 

The whole secret of getting in your outstanding" accounts re- 
ceivable is to in.-ist on observance of your terms. It is a simple 
matter of horse sense, that is all. State your credit terms, and 
insist that every man who buys from you hold to them. 

Certainly that formula is simple enough. And yet. it is just 
here that 99 per cent, of all dealers fail. Collection calls, col- 
lection letters, duns, "stunts" may be good or bad in themselves. 
But they are hopelessly ineffective, if they are not backed up by 
this simple fundamental principle: State your terms, and have 
the courage to get them observed ! 

SIMILARITY OF SELLING AND COLLECTING 

There is no basic difference between selling building supplies 
and collecting the money for them. Either problem simply 
means that a way must be devised to overcome the resistance 
against what you desire to accomplish. This is true, because 
the only difference between the sale and the collection is that, 
in the first instance, the customer signs the order and in the 
second instance he signs a check. 

Unless you are relying upon reaching every man, woman, and 
child in the country, general business conditions are not very 
important to you. The law of general average does not apply 
to you. unless you admit you are only sitting down and idly 
waiting for business to come your way. As long as there re- 
mains enough possible customers who are able to buy and who 
need your materials, your mission is to reach them and forget 
those who are not now possible prospects. 

The same thing holds true in collections. Money may be 
tight and scarce, but unless you have been extending credit with 



1 12 XIX. How Should Collections Br Handled 

utmost abandon, practically every one of your customers has 
the money, or can get it. There may be times when he hasn't 
enough money to immediately pay everything that he owes, and 
which is due, but even then he still may have enough money 
to pay your bill, or at least part of it. Whether you get that 
money or whether someone else gets it, depends on you. 

If any dealer handles his collections on the theory that the 
business conditions of the nation must be changed before he 
can collect the $132.64 due from Smith, he is on the wrong track. 
He does not have to change the whole nation to collect that bill, 
nor does he have to wait for someone else to change the nation. 
His battle is with Smith only. It will pay him to forget the 
others who do not owe him — and go after Smith, who does. 

REQUISITE OF HUMAN INTEREST IN SUCCESSFUL 
COLLECTION PLANS 

But this matter of getting your money when it's due is not a 
cold-blooded proposition of watching your customer like a vul- 
ture, altho certainly, as will be later illustrated, you should 












Name 




Wife 




Address 


Employed by 




Date Opened 




Date Closed 


Highest Credit 




Real Estate Owner 




Location 






Rents oi 




Terms 






References : 
















Name 


— 


FiG.se — 





Figure 66. A Card File Like This Should Be Maintained So 
That Credit May Be Granted Promptly. 



XIX. How Should Collections Be Handled 143 



6861 


DAT, 


AMOU.T 


PA, ME ,TS 


K E «* R K S 


LETTERS 












































































— Fl€?.€7 — 



Figure 67. This Card Enables the Dealer to See the Exact 
Status of the Customer's Account Without Referring to the 
Ledger Each Time. 



maintain some sort of adequate credit records. Rather, it is a 
question of realizing that fact and diplomacy, arid a genuine 
human sympathy and imagination are of the utmost importance. 

A great many people have an abhorrence of even a polite 
letter reminding them that they have failed to pay their bills. 
They resent it, no matter how courteously the letter is worded, 
and if it has an individual signature on it, they think that that 
person has a grudge against them, and likes to hound the life out 
of them about their bills. When only the firm's name is used, 
the customer is less likely to get the impression that the pro- 
prietor or manager is injecting his personality into the letter. 

One dealer's collection plan, which effectively produces worth- 
while results, consists of writing the following friendly letter, 
to all those customers who, for one reason or another, have 
neglected to settle their accounts. 

"If it is not convenient for you to pay your account in 
full, we shall deeply appreciate it if you can help us out 



1 II 



XIX. How Should Collections Be 1 1 (nulled 



F-I7752 Rand Visible Card Index. 


Patented May 14, 1912 


Mo. 


Purchases 


Payments 


Bal. 


Mo. 


Purchases 


Payments 


Ba 




In, 






~T 


July 










fcb. 






t 


A«g, 










Mar. 








Sept 










Apr. 






i 


Oct. 










M.v 








Nov. 










i.n. 




■ 


Oe, 










Rating 


Cr. Lin.it 


Name Address Folio 

— Fl<r 68 — 



Figure 68. Like Figure 67, This Card Makes Possible a Quick 
Review of the Customer's Account. 



with a payment of whatever you can spare at present. 

"We do not want to dun you, and if you can't pay just 
now, pay no attention to this request until such time as 
vou may be in a position to favor us. 

"Thank you very much for your business." 

The customer who receives this kind of a letter represents 
the best trade that this dealer enjoys. If they were not of this 
type, the letter would fail of its purpose, for there are always 
customers of the less desirable type who would take advantage 
of the offer that the letter carries, and put off paying their 
bills as long as they possibly could. 

We believe that the most successful collection plan is based 
on the theory that human interest is the biggest single aid in 
collecting money; in other words, that your customer will pay 
his bill, if he is treated with the same courtesy and considera- 
tion as you expect to receive from your creditors. 

One ingenious device serving this end is to write across a 
slip of paper attached to the top of every overdue bill sent out 
to customers, the following sentence: "Dollars are worth so 



XIX. How Should Collections Be Handled 1 -AS 

little today, I am sure you will not mind sending me the few 
you owe." Any dealer will rind that a device such as this will 
do more good in collecting accounts for them than any ordinary 
dunning letter. 

PERSONAL CONTACT BEST COLLECTION MEDIUM 

But the most successful plan of all is to have a heart to heart 



toopoT 


COMPARISON OFSALES-AND COLLECTIONS 






























































































































































































































/ 












































. 


































































■f 
































































y 






















s 
































































/.■ 






















// 












































































































/'■ 






















/.■ 
































































y. 






















/ •• 










































• 






















y 






















y 










































/ 






















/ 












































/ ■■ 






















/ -' 
































































/ 


































































































































/■■ 






















/■■ 

























































































































































































































Figure 69. A Graph Similar to the One Above Will Be Exceed- 
ingly Helpful in Enabling the Supply Man to Compare Sales with 
Collections and Govern His Activities Accordingly. 



146 XIX. How Should Collections Be Handled 

talk with your customer about his bill. Meeting customers in 
person makes for better mutual understanding. Such visits 
will smooth out wrinkles, and enable adjustments to be made, 
and claims settled, more quickly than in any other way. By this 
means you become familiar with the class of customers you 
are dealing with, and the condition of their businesses. Besides 
this, yon will find them returning to you again and again with 
orders, for they soon understand that you are interested in their 
welfare beyond the getting of orders. We think it is a good 
plan for the proprietor or manager to get about among his cus- 
tomers as much as possible, especially in connection with this 
matter of overdue accounts. In our judgment, it should be the 
policy of every dealer to gain the confidence of his customers 
thru personal contact with them. 

CREDIT AND COLLECTION INFORMATION 

To enable credit to be granted promptly by the office, a card 
file, either visible index or closed file, similar to that illus- 
trated by Fig. 66, should be maintained. If a card is main- 
tained for each customer, the approval of ordinary credits can 
be taken care of by the order clerks, as they are received over 
the telephone, thru the mail or otherwise. 

When it is desired to have a concise record of the condition 
of each account, without the necessity of referring to the de- 
tail in the Customers' Ledger, cards similar to Figs 67 and 68 
should be kept. 

Customers should be divided into at least three classes : 

1. Those who enjoy unlimited credit, and who pay promptly 
and according to terms of sale. 

2. Those upon whom a limit has been placed, and who are 
under surveillance. 

3. C. O. D. Customers ; i. e., cash or payment on delivery. 
To designate the particular one of the three above-named 

classes into which any customer may fall, three metal guides 
are used. One is blue, one green and one red. The blue tag 
is placed on ill accounts falling within the first classification ; 



XIX. How Should Collections Be Handled 14-7 

the green tag on all those comprising the second classification ; 
while the red tag signals danger, and is placed on all C. O. D. 
customers. 

CHARTING SALES AND COLLECTIONS 

In almost every building supply business, the proprietor or 
manager will rind a graph, similar to that depicted by Fig. 69, 
a real help in keeping collections normal. 

The sales and collections curves on this chart are plotted 
cumulatively, from month to month, the collection data being 
two months later than the sales figures. January sales are 
compared with March collections ; January plus February sales 
are compared with March plus April collections, and so on 
during the year. 

Seasonal lags and spurts in collections are thus clearly shown, 
and the general relations between collections and sales can be 
properly maintained. Working on a 60 day basis, if accounts 
are collected up to date, the sales and collection curves should 
be nearly parallel. 

Finally, go after your delinquent customers ; camp on their 
trail ; let them know you expect settlement— but do it kindly, 
courteously, tactfully. This is the secret of successful collec- 
tions. 



CHAPTER XX 

Finding the Right Selling Price 
and Fair Profit Percentage 

Just what method to use in figuring percentages in arriving 
at selling prices to produce a 10 per cent, profit, is given 1>y 
Mr. Hafner to answer this interrogation: 

Will you have Mr. Hafner explain the proper method of figuring per- 
centages in arriving at selling prices which will produce a net profit 
of 10 per cent, on annual sales proviH«»H th* rnst of doing business is 
15 per cent, of the annual sales ? 

In finding percentages, we always have a clearer view of what 
we want, if we put the figures in the shape of a fraction. 

For the purpose of illustration let us assume that the annual 
sales amount to $200,000.00 and that the annual expenses amount 
to $30,000.00. What we want to determine, first, is what per- 
centage of $200,000.00 is $30,000.00. To do this, we put the 
figures in the shape of a fraction, and divide the upper figure by 
the lower, thus : 

30000 



200000 1 30000 00 | .15 
20000 00 



10000 00 
10000 00 



We find, then, that the total yearly expenses of $30,000.00 
represents 15 per cent, of the total yearly sales of $200,000.00. 

In using percentages as a tool to work with, we should have 
a clear understanding of what percentage is. Percentage is a 
standard of comparison for amounts, as a thermometer is a 
standard of comparison for temperature, or a two-foot rule is 



XX. Finding Selling Price and Fair Profit M9 

a standard of comparison for lengths. The word percentum 
means 100 parts, or lOOths. As we compare lengths by inches 
and temperature by degrees, so we compare amounts by per cent., 
or hundredths. 

Accordingly, one amount compares with another amount as 
each contains a less or a greater number of lOOths, just as one 
temperature compares with another temperature according as it 
contains a greater or less number of degrees, or as one length 
compares with another length as it contains a greater or less 
number of inches. It is seen from this that percentage is simply 
a means for measuring figures. 

This is all apparently simple enough. And yet it does not 
always work out just right, it seems. Let us see, then, what 
it is that tangles up so many of us in attempting to handle per- 
centage. 

AN ACTUAL LOSS WHEN THE DEALER DIDN'T KNOW 

For purposes of illustration, let us take, first, the method of 
the dealer who knows nothing about what his expenses are. 
He has heard some other dealer say that he figures to make 10 
per cent, profit, and because that is what he thinks others are 
asking, he will figure something like this on a sale, say, of ce- 
ment, which costs him $2.50 per barrel : 

100 barrels cement (a $2.50 $250.00 

Add 10 per cent, of $250.00 for profit 25.00 

Total $275.00 

He will probably say to himself that by adding an additional 
$5.00 he will be on the safe side, and make his 10 per cent. 
profit and perhaps a little over, and therefore sells the lot for 
$280.00. 

Let us see, now, what has really happened : 

Cost of cement $250.00 

Expense 15 per cent, (not of $250.00, but of 



150 XX. Finding Selling Price and Fair Profit 



$280.00, which will be explained later) 42.00 

Total cost $292.00 

Sale price 280.00 

Net loss $ 12.00 or 

4.28+ PER CENT, of the selling price. 

THE SUPPLY MAN WHO KNEW HIS COSTS 

Next, let us illustrate the method of the dealer who knows, 
from last year's figures, that his expenses amount to 15 per 
cent, of his sales, but does not know how to apply that knowl- 
edge correctly. Probably his estimate will show up like this : 

100 barrels cement @ $2.50 $250.00 

Expenses, 15 per cent, of $250.00 37.50 

Profit, 10 per cent, of $250.00 25.00 

Total $312.00 

He will likely think that he can afford to shave his profit a 
little, and will therefore make the total $310.00, or' $3.10 per 
barrel. 

Let us see what has happened in his case : 

Cost of cement $250.00 

Expenses, 15 per cent, of $310.00 (instead of 

$250.00) 4(5.30 

$296.50 
Sale price 310.00 

Net profit $ 13.50 

which is 4.35+ per cent, of the sale and not 10 per cent. 

In this matter of figuring percentages, the very first thing 
we must get a firm hold on is this : 

THE SALE PRICE REPRESENTS 100 PER CENT. 

To figure by per cent, intelligently we must have somewhere 



XX. Finding Selling Price and Fair Profit 151 

something that represents 100 per cent., which in the case of 
building supply dealers is the SALE PRICE. When we at- 
tempt to figure any part of the whole as 100 per cent, we im- 
mediately get into difficulty. All component parts are measured 
as lOOths of this 100 per cent. 
Hence, 

if expenses represent 15 per cent. ; 

and profit represents 10 per cent. ; 

we have accounted for 2.5 per cent., 

and the cost of the cement must. 
therefore represent 75 per cent., 

making the sale price 100 per cent. 

In other words, the $250.00 cost of the cement is 75 per cent, 
of the sales price, which sales price is represented by the total 
of 100 per cent. 

A RULE FOR FIGURING PERCENTAGES 

In figuring percentages of this kind, the following rule must 
always be observed : 

DIVIDE THE AMOUNT OF THE COST BY THE PER- 
CENTAGE IT REPRESENTS. THE ANSWER WILL BE 
THE SALE PRICE. 

$250.00 ■— 75 per cent. = $333.33, which should be the selling 
price for 100 barrels of cement, provided the price paid is $2.50 
per barrel, expenses are 15 per cent, of the sales, and the dealers 
wish to make a profit of 10 per cent. net. 

How do we know this is correct? A method to be of any 
value must be susceptible to mathematical proof. Let us there- 
fore prove the proposition, thus : 

Cost of cement 75 per cent, of $333.33 == $250.00 

Expenses - 15 per cent, of 333.33 = 50.00 

Profit 10 per cent, of 333.33 = 33.33 



Total 100 per cent. $333.33 



152 XX. Finding Selling Price and Fair Profit 

This method is absolutely correct, whether it is applied to 
the sales of a barrel of cement, a thousand brick, or a ton of 
coal ; whether the sale amounts to $5.00 or $5,000.00. 

The selling price is 100 per cent., or the whole. All the 
component parts are represented by lOOths, or percentages of 
the whole. There is nothing in the entire equation that repre- 
sents 100 per cent., except the selling price. Hence, all per- 
centage computations should be based on the selling price. 



Ind 



ex 



(References are to pages) 

ACCOUNTING 

Cost 56-90 

Definition of 14 

Description of 14 

Fundamentals of 11-19 

Standardization of 11, 123-127 
System of _„11 

ACCOUNTING FOR CE- 
MENT SACKS SS 

ACCOUNTING FOR COAL 
MERCHANDISING S9 

ACCOUNTING FOR LUM- 
BER MERCHANDISING 
89, 103-10S 

ACCOUNTING FOR PUR- 
CHASES _ 91-97 

ACCOUNTING FOR 

SALES 98-102 

ACCOUNTS, 

Accounts Payable 52 

Accounts Receivable 44 

Accrued Commissions 53 

Accrued Compensation 

Insurance 53 

Accrued Interest 53 

Accrued Labor 52 

Accrued Salaries 53 

Accrued Taxes - 53 

Administrative and Gen- 
eral Office Expense 51 

Allowance for Deprecia- 
tion 4S 

Allowance for Doubtful 

Accounts 44 

Asset _ 34-36 

Autos and Trucks 46 

Books of 14-32 

Building 46 

Capital Stock 15, 54 

Cash - 15, 18, 43 

Chart of 35-38 

Compensation Insurance 

Deposit 49 

Cost of Sales 38, 56 

Customers 18 

Delivery Expenses- 51 

Discount Allowed 56 

Discount Earned 56 

Dividends Payable 52 

Expense Accounts..... 64-73 

Fundamentals of 11-19 

Garage and Stable Equip- 
ment - 47 

Good Will ...._ , ...,.„.~49 



Harness 47 

Horses 47 

Income and Deductions 37, 38 

Insurance _..49 

Interest 53 

Interest Earned 56 

Interest Paid _56 

Inventory 45 

Investment 15, 45 

Labor _ 52 

Land 45 

Leaseholds 49 

Ledger 14, 26, 32-57 

Liability -....34, 36, 37 

Merchandise 15, 18, 35, 45 

Nominal 17 

Notes Payable 51 

Notes Receivable 43 

(References are to pages) 
Notes Receivable Dis- 
counted _ 43 

Office Furniture and Fix- 
tures ...48 

Prepaid Interest 50 

Profit and Loss 15, 55 

Purpose of 11 

Real - 15 

Reserve for Income and 

Excess Profits Tax 54 

Reserve for Amortization 

of Good Will 54 

Reserve for Amortization 

of Leaseholds 54 

Salaries _53 

Sales 18, 37, 55 

Sales Allowances 55 

Sales Returns 55 

Selling Expenses — 51 

Stationery and Office 

Supplies 50 

Supplies 50 

Surplus — 54 

Taxes :.-53 

Unexpired Insurance 49 

Wagons = -47 

Warehouse and Yard 

Equipment 46 

Yard and Warehouse Ex- 
penses 51 

ACCOUNTS PAYABLE 52 

ACCOUNTS PAYABLE AND 
DISTRIBUTION RECORD 

Description of 20, 106 

Revision of _ 106 

ACCOUNTS RECEIVABLE..44 



15i 



Index 



(References are to pages) 
ACCRUED COMMISSIONS..53 
ACCRUED COMPENSA- 
TION INSURANCE 53 

ACCRUED INTEREST 53 

ACCRUED LABOR 52 

ACCRUED SALARIES 53 

ACCRUED TAXES 53 

ADMINISTRATIVE AND 
GENERAL OFFICE EX- 
PENSES _ 51 

ADVERTISING 70, 7S 

ALLOWANCE FOR DOUBT- 
FUL ACCOUNTS 44 

ANALYSIS 

Of Expenses 21, 22, 58-63 

Of Purchases 20, 21 

Of Sales 22, 23 

APPLICATION OF EX- 
PENSES TO SALES 

.....81-87, 131 

ASSETS 19 

Accounts 34-36 

Current _ 35 

Nominal 36 

Permanent 36 

Tangible _ 15 

AUTOS AND TRUCKS 46 

AUTO EXPENSES 70, 78 

BAD DEBTS 72, 79 

BALANCE SHEETS 

19, 27-29, 57, 139, 140 

Accounts 35-37 

BASIS FOR DISTRIBUT- 
ING EXPENSES .-80 

BOOKKEEPING 

Description of 13 

Entries _ 20-32 

Forms (see form sheets in 
back of book). 
BOOKKEEPING 

MACHINES 128-132 

Not a system of book- 
keeping 139 

When and when not eco- 
nomical 131 

BOOKS 

Description of 14, 20-32 

Accounts Payable and 

Distribution Record 25 

Cash Disbursements Rec- 
ord _ 21 

Cash Receipts Record 24 

Customers' Ledger 27, 100 

Forms (see form sheets in 
back of book.) 

Journal 25 

General Ledger 26 



(References are to pages) 
Sales Analysis _22 

BUILDINGS 

Account 46 

Depreciation of 48, 67 

Maintenance of 65, 68 

BUSINESS 
Conditions, Study of. 124-127 

Cost of Doing 123-127 

Cycles -.118-122 

Facts, How Furnished 

40, 123-127 

Failures, Reasons for 111, 112 

In General 121, 122 

Reports 124-127 

Transactions 11-19 

CAPITAL 

Expenses (Non-operating 

Expense) _ 73 

Income (Non-operating 

Income) _ 73 

Stock Account 54 

CASH _ 13-15 

Account 18, 43 

Condition of 13 

Disbursements Record 21 

Receipts Record 24 

Sales _22 

Transformation of 13-14 

CASH DISBURSEMENTS 
RECORD 21 

CASH RECEIPTS RECORD 24 

CEMENT SACKS, AC- 
COUNTING FOR 88 

CHARGES, DEFERRED 

_ 36, 4l'-5u 

CLASSIFICATION OF 

EXPENSES 64-73 

COAL MERCHANDISING, 
ACCOUNTING FOR 89 

COLLECTIONS 141-147 

Charting 147 

Devices for _ 144 

How Handled 141-147 

Human Interest In... .142-143 

Information for 146 

Mediums of 141-147 

Personal Contact In 145 

Plans _ 143 

Records 98, 142, 144 

Requisites to Successful.,142 
Similarity to Selling 141 

COLLECTION DEVICES .144 

COLLECTION INFOR- 
MATION 146 

COLLECTION LETTERS..143 

COLLECTION MEDIUMS 

141-147 



Index 



155 



(References are to pages) 

COLLECTION RECORDS 

143-144 

COLLECTION AND 

SALES CHARTS 145, 147 

COMMISSIONS 69, 78 

COMPENSATION 

INSURANCE ...49, 53 

CO-OPERATION 123-127 

COSTS -58-90, 116, 121 

Analysis of 58-63 

Application of 81-90 

Constituents of 60 

Definition of 61 

Description of - 59 

Distribution of 74-80 

Lack of Knowledge of 58 

Of Doing Business 123-127 

Problem of 58 

Reliable Methods of 58-90 

Service of 126 

COST OF DOING 

BUSINESS _... .123-127 

COST OF SALES 38, 56 

COST PRICES 94, 96 

COST SYSTEM..58-90, 116, 121 

Basis of 58-63 

Description of 58-90 

Forms (see form sheets in 
back of book). 

Mapping the 61 

Purpose of..— 109, 121 

Value of 109-113, 121 

Uniform 124-127 

CREDIT 

Acid Test of 136 

Contracting 136 

Expenses _ 71, 79 

Keeping Credit Good..— 135 

Limit of _134 

Memoranda 101, 102 

Over Expansion of 133 

Records 98, 142-144 

Relation of Sales Volume 

to 134 

Safety Valve of 136 

' Use. and Abuse of 133-140 

CREDIT AND COLLEC- 
TION EXPENSE 71, 79 

CUSTOMERS 

Accounts 18 

Collecting from 141-147 

Ledger 27, 100 

Personal Contact with 145 

CYCLES OF BUSINESS 

118-122 

DEFERRED CHARGES 

". 36, 49, 50 



(References are to pages) 
DELIVERY EXPENSES 

Account 51 

Application to Sales 82 

DEPARTMENTAL DISTRI- 
BUTION OF EXPENSES 

„ _ 74-S0 

DEPARTMENTS OF 
BUILDING SUP- 
PLY BUSINESS 61 

DEPRECIATION 67, 68, 76 

DIRECT SHIPMENTS 81 

DISCOUNT ALLOWED 56 

DISCOUNT EARNED ...56 

DISTRIBUTION OF 

EXPENSES 74-80, 131 

DIVIDENDS _52 

DOUBLE ENTRY BOOK- 
KEEPING 11-19, 20-32 

Fundamental Principles 

of 11-19 

Nature of 15 

DUES AND SUBSCRIP- 
TIONS - 71, 79 

EXECUTIVE JUDGMENT 110 
EXECUTIVE SALARIES 

69, 77 

EXPENSE ACCOUNTS....58-80 

Advertising 70, 78 

Auto Expenses..... 70, 78 

Bad Debts 72, 79 

Commissions 69, 78 

Credit and Collections..71, 79 

Depreciation 67, 77 

Dues and Subscriptions 71, 79 

Executive Salaries 69, 77 

Insurance 65, 76 

Labor 64, 75 

Legal and Professional 

Services ...- 71, 79 

Maintenance 65, 76 

Office Salaries 69, 77 

Postage 70, 79 

Rent 68, 77 

Salesmen's Salaries 69, 78 

Taxes 66, 76 

Team and Truck Hire.i68, 77 
Telephone and Tele- 
graph . — 70, 79 

Traveling Expense 70, 78 

Unclassified 72, 79 

Water, Fuel and Light 71, 79 
EXPENSE APPLICATION 

TO SALES 81-87. 131 

EXPENSES..13, 16, 17, 19, 64-73 

Analysis of 

20, 21, 58-63, 105, 131 

Application of, to Sales 
_....81-90, 131 



156 



Index 



(References are to pages) 

Classification of 62, 64-73 

Controlling 117 

Delivery 51, 82 

Distribution of, to 

Departments 74-80, 131 

Office and Administra- 
tive _ 51, 83 

Selling 51, 82 

Yard and Warehouse. ...51, 82 

FACTS OF BUSINESS 

Current 126 

Description of _ 128 

Explanation of ,128 

Gathering 129 

How Furnished 40, 123-127 

Knowledge of 124-127 

FAILURES IN BUSINESS 

Prevention of...._ 112 

Reasons for Ill 

FINANCIAL STATEMENTS 
(BALANCE SHEETS) 

19, 27-29, 57, 139-140 

Forms (see form sheets in 
back of book). 

FUND, PETTY CASH....21, 42 

FURNITURE AND FIX- 
TURES 48 

GARAGE AND STABLE 
EQUIPMENT 47 

GENERAL LEDGER 33-57 

Accounts _42-57 

Arrangement of 34-41 

Business Facts Furnished 

by 40, 41 

Constituents of 34 

Description of 33-41 

Feeders for : 33 

Information Furnished by 39 

GOING INVENTORY 

Description of 93, 114-117 

Necessity for 114-117 

Significance of .,39, 114-117 

GOOD WILL 49, 54 

HARNESS 47 

HORSES _..47 

INCOME AND DEDUC- 
TIONS ACCOUNTS 37, 38 

INCOME AND EXCESS 

PROFITS TAX 54 

INCOME AND EXPENSE 
STATEMENT (PROFIT 
AND LOSS ST AT E- 
MENT) 
19, 29-32, 57, 84-86, 13S 

INDIRECT SHIPMENTS 81 

INDUSTRIAL DISTRESS, 
CAUSES OF 58 

INSURANCE 65, 76 



(References are to pages) 

INVENTORY 

Accounts 45 

Perpetual or Going 

39, 93, 114-117 

INVESTMENTS 45 

INVOICES 

Purchase 95 

Sales _ 99 

INTEREST 

Earned 56 

Paid 56 

Prepaid - 50 

JOURNALS, DESCRIP- 
TION OF 14, 25 

KNOWLEDGE OF 

COSTS 58-63 

LABOR 64, 74, 105 

LAND 45 

LEASEHOLDS - 49, 54 

LEDGERS 

Customers 26 

Income and Expense :..26 

General 26, 33-41 

LEGAL AND PROFES- 
SIONAL SERVICES....71, 79 

LIABILITIES 19 

Accounts 34, 36, 37 

On Balance Sheets 

19, 27-29, 57, 139, 140 

LUMBER MERCHANDIS- 
ING _ 89, 103-10S 

MACHINERY AND 

EQUIPMENT 46 

MAINTENANCE 65, 68, 75 

MANAGEMENT 59, 60 

MANUFACTURING DE- 
PARTMENTS 89, 90 

MATERIAL 

Accounts 18 

Accounting Control over.. .94 

Cost Prices of -94 

Methods of Pricing 96 

Purchase Order for 91 

Request for Purchase of.... 91 

Safeguarding 92 

Stock Ledger for..93, 114-117 

Variations in Cost of 96 

Vouching Purchases of 95 

MERCHANDISE 

18, 91-96, 114-117 

METHODS. OF COST 

58-90, 116. 121 

MONTHLY REPORTS 
Balance Sheets 

19, 27-29, 57, 139. 140 

Profit and Loss Statements 
19. 29-32. 57. 84-86, 13S 

NOMINAL ACCOUNTS 17 



Index 



157 



(References are to pages) 

XON-OPERATIXG 

EXPEXSES - 73 

NOTES PAYABLE 51 

XOTES RECEIVABLE 43 

XOTES RECEIVABLE, 
DISCOUXTED 43 

OFFICE AXD ADMIXIS- 
TRATIVE EXPEXSES-51, S3 

OFFICE FURNITURE AND 
FIXTURES 48 

3FFICE SALARIES 69, 77 

' tFFICE SUPPLIES 50 

I (PERATIXG 

EXPEXSES ...58-80 

PERATIXG STA T EMENTS 
19, 29-32, 57. 84-86, 138 

ORIGINAL ENTRY, 

BOOKS OF... 14, 20-32 

OVERHEAD EXPENSES 58-80 

PAYABLE 

Accounts 52 

Xotes 51 

PERCEXTAGES 

Application of 149-152 

Description of...._ 148, 149 

How to Figure 148-152 

Rule for Figuring 151 

PERPETUAL INVENTORY 

Description of 93, 114-117 

Necessity for 114-117 

Significance of 39. 114-117 

PETTY CASH 

Funds ..._ 42 

Summary 42 

Vouchers .42 

POSTAGE 70, 79 

PREPAID IXTEREST 50 

PRICES 

59, 94, 96, US, 119, 148-152 
Chart of Wholesale 

Commodity 119 

Decreasing ...119 

Increasing _ 120 

Trend of 119 

PROFESSIOXAL 

SERVICES 71, 79 

PROFIT AXD LOSS 

....15, 55, 57, 84, 110, 114, 130 
Statements of 

19, 29-32. 57, 84-S6, 138 

PROFITS 130 

Basis of 114 

Guaranty of 110 

Percentage of ..114 

PROPRIETORSHIP 

ACCOUXTS 34, 35, 38 

PURCHASES 

Accounting Control Over.. 94 



(References are to pages) 

Accounting for 91-97 

Cost Prices of _ 94 

Invoices for 95 

Methods of Pricing 96 

Orders for 91 

Request for _ 91 

Safeguarding 92, 93 

Stock Ledger for 93 

Variations in Cost of 96 

Vouching Invoices for 95 

PURPOSE OF 

ACCOUNTING .11-19 

RECEIVABLE 

Accounts 44 

Notes 4;: 

RECORDS 

Accounts Payable and 

Distribution '. 25 

Cash Disbursements 21 

Cash Receipts 24 

Customers Ledger 27 

Description of 14, 20-32 

Forms (see form sheets in 
back of book). 

Journal _ 25 

General Ledger 26 

Sales Analysis 22 

RENT _ 68, 77 

REPORTS 
Balance Sheets 

19, 27-29, 57, 139, 140 

Profit and Loss Statements 
19, 29-32, 57, 84-86, 13S 

REQUEST FOR 

PURCHASES .91 

RESERVES 
For Income and Excess 

Profits Tax 54 

For Amortization of Good 

Will 54 

For Amortization of 

Leaseholds .....54 

SALES 

Accounting for 98-102 

Accounting Procedure 

18, 98-102 

Accounts 37 

Allowances 55 

Analysis Record....22, 100, 106 

Charting 147 

Cost of 38 

Classification of 37, 107 

Credit Memoranda 101, 102 

Credit Records 98 

Direct 81 

Groups of 81 

Indirect —81 

Invoices 99 



ir>8 



liulv 



(References are to pages) 
Posting to Customers' 

Ledger 100, 101 

Returns 55 

Shipping Orders for 98 

Transactions 18 

Yard 81 

SALESMEN'S 

SALARIES 69, 78 

SELLING 

Expenses 51 

Prices 59 

SELLING EXPENSES 
Application to Sales 82 

SHIPPING ORDERS 98 

STATIONERY AND 

OFFICE SUPPLIES 50 

STATISTICS OF BUSI- 
NESS 124-127 

STOCK 

Capital 54 

Records 42, 93 

Turnover 114-116 

STORES RECORD 42, 93 

SUPPLIES _50 

SURPLUS 54 

SYSTEM 128-132 

TAXES 66, 76 

TEAM AND TRUCK 
HIRE 68, 77 



(.References are to pages) 
TELEPHONE AND 

TELEGRAPH 70, 79 

THEORY OF ACCOUNTS 

11-19 

TIME, AS BASIS FOR DIS- 
TRIBUTING LABOR 

EXPENSE 80, 105 

TIME REPORTS 105 

TRAVELING EXPENSES 

70, 78 

TURNOVER, STOCK. .114-116 
UNCLASSIFIED 

EXPENSES 72, 79 

UNEXPIRED INSURANCES 
UNIFORM COST FINDING 

SYSTEM 124-127 

VOUCHERS 

Petty Cash 42 

Journal 25 

WAGONS 47 

WAREHOUSE AND YARD 

EQUIPMENT 46 

WATER, FUEL AND 

LIGHT 71 

WHOLESALE 

COMMODITY PRICES 118 

YARD AND WAREHOUSE 

EXPENSES 50, 82 

YARD SALES 61 




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_S1 



Write for our co-opera- 
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(fflppgg) 

TALLMAN, ROBBINS & COMPANY 

314 IV. Superior St., Chicago, Illinois 

Manufacturers of B. S. N. Cost Accounting Forms 



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Supplement to Building Supply News Handy Cost Book ' Charts, Diagrams and Forms Referred to in Text 



GENERAL LED GER ACCOUNTS 



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INCOME AND EXPENSE LEDGER ACCOUNTS 



Chart of Kxpnisr Chissifk-.uions 





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